Lawrence Berkeley National Laboratory

Policymakers have increasingly recognized the structural impediments to effective competition in electricity markets, which has resulted in a renewed emphasis on the need for careful market design and market monitoring in wholesale and retail electricity markets. In this study, we review the market monitoring activities of four Independent System Operators in the United States, focusing on such topics as the organization of an independent market monitoring unit (MMU), the role and value of external market monitors, performance metrics and indices to aid in market analysis, issues associated with access to confidential market data, and market mitigation and investigation authority. There is consensus across the four ISOs that market monitoring must be organizationally independent from market participants and that ISOs should have authority to apply some degree of corrective actions on the market, though scope and implementation differ across the ISOs. Likewise, current practices regarding access to confidential market data by state energy regulators varies somewhat by ISO. Drawing on our interviews and research, we present five examples that illustrate the impact and potential contribution of ISO market monitoring activities to enhance functioning of wholesale electricity markets. We also discuss several key policy and implementation issues that Western state policymakers and regulators should consider as market monitoring activities evolve in the West.