confidentiality of MMU referrals to the Commission, as well as the
confidentiality of the progress and results of its own investigations,
be retained.
c. Pro Forma Tariff
i. Preliminary Proposals in the ANOPR
    241. Finally, the Commission in the ANOPR stated our intent to
include in this NOPR a proposed pro forma MMU section for RTO/ISO
tariffs, which would contain standardized core provisions but also
allow for regional variations. The Commission stated that it
anticipates including in the pro forma MMU section protocols for the
referral of tariff, rule and market manipulation violations to the
Office of Enforcement, as well as protocols for the referral of
perceived market design flaws and recommended tariff changes to the
Office of Energy Market Regulation. The Commission solicited comments
on the structure and content of such a pro forma section.
ii. Comments on the ANOPR Proposals and Questions
    242. There was substantial support for a pro forma tariff section
of core MMU provisions. However, a number of entities, such as the
Midwest ISO, cautioned that a pro forma tariff would ignore regional
variations, disregard stakeholder consensus and increase compliance
burdens. Those arguing for a pro forma tariff supported the ANOPR
proposal that each RTO or ISO be given the flexibility to propose
individual provisions, in order to reflect regional variations. NYISO
cautioned against the Commission attempting a pro forma mitigation
provision.
iii. Commission Proposal
    243. The Commission had proposed in the ANOPR that a pro forma MMU
tariff section would be limited to essential core MMU provisions, such
as functions, oversight, tools and information sharing, thus freeing
the RTOs and ISOs to propose regional variations. In light of the fact
that in this NOPR we are proposing that many important aspects of the
market monitoring relationship with the RTOs and ISOs be left to the
discretion of the individual RTOs and ISOs, and in light of the fact
that there may well be other regional variations which the RTOs and
ISOs may wish to propose, the Commission believes a pro forma tariff
section, which would necessarily have a large number of blank
subsections, would be of limited value.
    244. For that reason, the Commission proposes that instead of
requiring the RTOs and ISOs to follow the outlines of a pro forma MMU
tariff section, that they conform their tariff to the requirements that
will be ultimately set forth in the rulemaking to be issued in this
docket, including centralization of the MMU provisions in one section.
The Commission also proposes that each RTO and ISO include in its
tariff protocols for the referral of tariff, rule and market
manipulation violations to the Office of Enforcement, revised as
discussed above, and for the referral of perceived market design flaws
and recommended tariff changes to the Office of Energy Market
Regulation.

D. Responsiveness of RTOs and ISOs to Stakeholders and Customers

    245. In this section of the NOPR, the Commission proposes to
establish new criteria intended to ensure that an RTO or ISO board is
responsive to the RTO's or ISO's customers and other stakeholders.
These criteria will include: (1) Inclusiveness; (2) fairness in
balancing diverse interests; (3) representation of minority positions;
and (4) ongoing responsiveness. The Commission proposes to require each
RTO or ISO to submit a compliance filing demonstrating that it has in
place or will adopt practices and procedures to ensure that it is
responsive to stakeholders and customers. In the compliance filing, the
Commission encourages each RTO or ISO to evaluate what practices and
procedures may best satisfy the responsiveness criteria.
    246. In the ANOPR, the Commission made a preliminary proposal to
improve responsiveness of RTO and ISO boards of directors to customers
and other stakeholders. By responsiveness, we mean an RTO or ISO
board's willingness, as evidenced in its practices and procedures, to
directly receive concerns and recommendations from customers and other
stakeholders, and to fully consider and take actions in response to the
issues that are raised. We also sought comment on several issues
focusing on whether and how RTO and ISO responsiveness to stakeholders
can be improved, including management practices and stakeholder
participation in the budgeting process.
1. Background
    247. In Order No. 888, the Commission encouraged but did not
require the formation of ISOs, delineating eleven principles defining
the operations and structure of a properly functioning ISO.\237\
Similarly, in Order No. 2000, the Commission encouraged utilities to
join RTOs voluntarily and set out the characteristics that an RTO must
possess and the minimum functions that it must perform.\238\ Embodied
in Order Nos. 888 and 2000 is the requirement that the regional
transmission entity be independent from market participants.
---------------------------------------------------------------------------

    \237\ Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery
of Stranded Costs by Public Utilities and Transmitting Utilities,
Order No. 888, FERC Stats. & Regs. ] 31,036, at 31,730-32 (1996),
order on reh'g, Order No. 888-A, FERC Stats. & Regs. ] 31,048, order
on reh'g, Order No. 888-B, 81 FERC ] 61,248 (1997), order on reh'g,
Order No. 888-C, 82 FERC ] 61,046 (1998), aff'd in relevant part sub
nom. Transmission Access Policy Study Group v. FERC, 225 F.3d 667
(DC Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
    \238\ Order No. 2000-A, FERC Stats. & Regs. ] 31,092 at 30,993.
---------------------------------------------------------------------------

    248. Although it required independence, Order No. 2000 did not
mandate detailed governance requirements for an RTO board of directors.
The Commission stated that, given the early stage of RTO formation, it
would be ``counterproductive'' to impose a one-size-fits-all approach
to governance when RTOs may have varying structures based on their
regional needs.\239\ Therefore, the Commission stated that it would
review governance proposals on a case-by-case basis.\240\ The
Commission also provided guidance based on existing governance
arrangements, emphasizing the

importance of stakeholder input regarding both RTO formation and
ongoing operations. The Commission stated that stakeholder committees
should have balanced representation on such committees so that no one
stakeholder class dominates the committee's recommendations. The
Commission added that, in the case of a non-stakeholder board, it is
important that this board not become isolated.\241\ For these reasons,
the Commission explained that both formal and informal mechanisms
should be used to ensure that stakeholders can convey their concerns to
the non-stakeholder board. This standard is no different for currently-
operating ISOs, as the ISO principle of independence requires fair
representation of all types of users of the system to ensure that the
ISO formulates policies, operates the system, and resolves disputes in
a fair and non-discriminatory manner.\242\
---------------------------------------------------------------------------

    \239\ Id. at 31,073. The Commission noted that existing ISOs
have varying forms of governance. Some used a two-tier form of
governance with a non-stakeholder board and advisory committees of
stakeholders while one ISO in particular, CAISO, employed a
decision-making board consisting of both stakeholders and non-
stakeholders. Id.
    \240\ Id. at 31,073-74.
    \241\ Id.
    \242\ Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,730-31.
---------------------------------------------------------------------------

2. Preliminary Proposals in the ANOPR
    249. In the ANOPR, the Commission made the preliminary conclusion
that representatives of RTO and ISO customers and other stakeholders
should have some form of effective direct access to the RTO or ISO
board of directors.\243\ The Commission asked whether each RTO and ISO
should be required to develop and implement a means to ensure that
customers and other stakeholders have such access.\244\ The Commission
made the preliminary proposal that either of two mechanisms, a hybrid
board or a board advisory committee, could accomplish the goal of
enhancing customer and other stakeholder access to the board.\245\
---------------------------------------------------------------------------

    \243\ ANOPR, FERC Stats. & Regs. ] 32,617 at P 148.
    \244\ Id. P 149.
    \245\ Id. P 151, 153.
---------------------------------------------------------------------------

    250. The Commission explained that a hybrid board would be composed
of both independent members and stakeholder members, with each member
holding a seat on the board and participating fully in board decisions
with an equal vote. The Commission stated that a hybrid board would
directly expose the board to stakeholders' concerns and that it
believed that it should be possible to structure a hybrid board without
sacrificing overall board independence.\246\
---------------------------------------------------------------------------

    \246\ The Commission also noted that certain restrictions may be
necessary for the hybrid board proposal to ensure that stakeholder
members do not inappropriately serve their own interests. Id. P 152.
---------------------------------------------------------------------------

    251. Alternatively, the Commission suggested that a board advisory
committee, comprised of senior executives of the various stakeholder
groups, could serve as an expert panel that would inform the board of
stakeholder views. The board advisory committee would have no voting
authority on board decisions, but could make recommendations directly
to the board on matters before the board and on matters it believes the
board should address. The Commission stated that it envisioned such a
committee to include members selected to represent a reasonable range
of diverse interests.\247\
---------------------------------------------------------------------------

    \247\ Id. P 153-54.
---------------------------------------------------------------------------

    252. Based on these two models of improving RTO and ISO
responsiveness, the Commission sought comments on the following
questions:
     How should any hybrid board be structured? What is an
appropriate limit on the percentage of non-independent board members?
If a variety of customer views are to be represented, what implications
does this have for the size of the board?
     What, if any, rules and restrictions should be placed on
the stakeholder board members of a hybrid board?
     Can the reform proposed here be met through other means
such as increased direct board interaction with customers and other
stakeholders, e.g., through open board meetings or through required
attendance of board members at major stakeholder meetings of the RTO?
     Are there measures--such as customer satisfaction
measures, cost oversight benchmarks, or stakeholder participation
measures--that RTOs and ISOs should use to assess the success of the
mechanism for improving responsiveness?
    253. In the ANOPR, the Commission also requested comment on whether
any reforms are necessary to increase management responsiveness to
stakeholders. Among specific topics, the Commission requested comment
on whether it should encourage or require RTOs and ISOs to publish a
strategic plan that includes plans for ensuring responsiveness to
customers and stakeholders, set performance criteria for executive
managers based in part on responsiveness to stakeholders, and relate
executive compensation to a measure of responsiveness to stakeholders.
3. Comments on the ANOPR Proposals and Questions
    254. The Commission received numerous responses from commenters
regarding the questions posed in the ANOPR. A majority agrees with the
Commission's conclusion that more effective direct access to RTO and
ISO boards is needed. They do not agree, however, on the mechanism to
achieve that goal. Some commenters favor the hybrid board, but many
express concern with this approach, preferring the board advisory
committee. Several commenters support using both a hybrid board and a
board advisory committee,\248\ noting that the two approaches are not
mutually exclusive.\249\ Several commenters discussed changes in RTO
and ISO management practices to improve the responsiveness.
---------------------------------------------------------------------------

    \248\ E.g., AEP at 7; Ameren at 44; APPA at 88. SMUD states that
the Commission should explore both approaches. SMUD at 20-22.
    \249\ NYISO suggested a shared governance model as an
alternative to the hybrid board and the board advisory committee
models proposed in the ANOPR. NYISO at 6.
---------------------------------------------------------------------------

a. Comments on the Hybrid Board Approach
    255. Some commenters support the proposal for a hybrid board
approach, stating that a hybrid board would improve RTO responsiveness
and allow stakeholder access to an RTO and ISO board.\250\ While they
believe that such a board would be a good mechanism to achieve the
Commission's goal, they also state that some requirements on how such a
board should be structured are necessary. For example, California Munis
state that stakeholder board members should not form a majority of an
RTO's or ISO's board under a hybrid board form of governance.\251\ SMUD
states that a hybrid board should include diverse representation and
must be properly balanced so that no single interest is unduly
influential.\252\ TAPS recommends that within a hybrid board,
independent directors should hold a majority of board seats to prevent
capture by stakeholders.\253\ Further, before implementing the hybrid
board approach, the Connecticut and Massachusetts Municipals recommend
that the Commission provide clarity regarding any possible conflict of
interest concerns among stakeholder directors.\254\
---------------------------------------------------------------------------

    \250\ E.g., California Munis at 15; Silicon Valley Power at 15;
Connecticut and Massachusetts Municipals at 16; Wisconsin Industrial
at 11; TAPS at 34; Industrial Consumers at 40.
    \251\ California Munis at 15.
    \252\ SMUD at 21.
    \253\ TAPS at 34.
    \254\ Connecticut and Massachusetts Municipals at 17.
---------------------------------------------------------------------------

    256. Industrial Consumers recommend that the Commission require
each RTO or ISO to establish a hybrid board, but only if
representatives of loads (large and small customers) are assured equal
representation with

supply-side interests. They note that Electric Reliability Council of
Texas (ERCOT) already has a hybrid board.\255\ Industrial Consumers
propose that non-independent stakeholder members should represent less
than half of the total ISO and RTO board (unlike in ERCOT). They add
that an equal number of stakeholders should represent supply-side and
demand-side (consumer) interests.\256\ To that end, Industrial
Consumers state that it may be necessary to require some form of
rotation among stakeholder groups. Finally, they note that all existing
ISO and RTO boards already have a ``hybrid'' feature because some
members are retired utility executives, and they urge the Commission to
consider counting such members as stakeholders in hybrid boards.
---------------------------------------------------------------------------

    \255\ Industrial Consumers note that the ERCOT hybrid board is
composed of the following: (1) Five unaffiliated independent board
members (two serve as chair and vice chair); (2) independent power
marketers; (3) industrial consumers; (4) commercial consumers; (5)
independent retail electric providers; (6) electric cooperatives;
(7) residential consumers; (8) investor-owned utilities; (9)
independent generators; and (10) municipally-owned utilities.
Industrial Consumers at 41.
    \256\ For example, a ten-member board would have four
stakeholder members: two representing suppliers and two representing
consumers. Id.
---------------------------------------------------------------------------

    257. Wisconsin Industrial also recommends a hybrid board structure,
with the condition that end-use customer and supplier representation be
equal. Wisconsin Industrial believes that a hybrid board has an
advantage in that a variety of stakeholder interests can be objectively
and directly represented without first being filtered through RTO and
ISO management.\257\
---------------------------------------------------------------------------

    \257\ Wisconsin Industrial at 11.
---------------------------------------------------------------------------

    258. Further, several of the commenters that support the hybrid
board oppose the advisory board committee, noting that such a committee
would not provide for direct discussion and information exchange, and
that its advice could be ignored by board members.\258\ Others note the
disadvantages of an advisory board committee.\259\
---------------------------------------------------------------------------

    \258\ E.g., TAPS at 40-42.
    \259\ For example, Indianapolis P&L notes that, while the
Midwest ISO advisory committee provides some value, it faces
challenges in its communication with the board of directors because
management views are sometimes at odds with stakeholder views, the
time for the advisory committee to consult with the board on
technically complex issues is limited, and competing messages from
committee members dilute and muddle the message. Indianapolis P&L at
6-7.
---------------------------------------------------------------------------

    259. Many commenters, however, do not support the hybrid board
approach, emphasizing that a hybrid board can, among other things,
jeopardize the independence of an RTO or ISO board.\260\ They contend
that RTO and ISO independence must be preserved because it gives
participants in organized wholesale markets the confidence that: (1)
The markets are being administered fairly; (2) proprietary and critical
infrastructure information is being protected; and (3) customers will
ultimately receive the benefits of competition.
---------------------------------------------------------------------------

    \260\ E.g., California PUC at 34-35; DC Energy at 9; Comverge at
12; Dominion Resources at 10; Duke Energy at 29; Dynegy at 7;
FirstEnergy at 12; Industrial Coalitions at 27; ITC at 5-13; Joint
Consumer Advocates at 24; North Carolina Commission at 8; OMS at 42;
NARUC at 12; Old Dominion at 31; Pepco at 22; The Alliance at 19;
Xcel at 27.
---------------------------------------------------------------------------

    260. Many commenters argue that stakeholder representation on a
hybrid board would conflict with stakeholders' fiduciary responsibility
to their employers, making it difficult for the stakeholder member to
be impartial when the goal of that member's organization is to maximize
its company's profits. Therefore, they note that it is unrealistic to
expect stakeholder board members to refrain from acting in the best
interests of the entity with which they are affiliated.
    261. Some commenters also question whether a hybrid board can
ensure fair representation, arguing that smaller companies are less
likely to have the resources necessary to participate in such a
board,\261\ thus not all sectors of the market would be fairly
represented, resulting in the potential for undue influence.
---------------------------------------------------------------------------

    \261\ E.g., Comverge at 12; Industrial Coalitions at 25-28; The
Alliance at 19-20.
---------------------------------------------------------------------------

    262. To address those concerns for undue influence, commenters have
suggested that the selection of non-independent board members should
require a supermajority vote. APPA recommends that RTO and ISO
stakeholder directors be elected by a supermajority of stakeholder
sectors, contending that stakeholder representatives should be balanced
between generation and load interests.\262\ APPA further expands on its
proposal by stating that using a supermajority election process will
``ensure that well-respected and knowledgeable members of the
stakeholder community serve in this capacity.'' \263\ TAPS suggests
that a supermajority vote requirement for selection of stakeholder
board members would go a long way to mitigate concerns that the
stakeholder board members would use their position inappropriately to
advance their parochial interests.\264\
---------------------------------------------------------------------------

    \262\ APPA at 13.
    \263\ Id. at 93.
    \264\ TAPS at 45. Both APPA and TAPS reference a similar
recommendation from a Wisconsin Public Power Inc. (WPPI) white
paper, contained as Attachment A to the TAPS comments. WPPI suggests
that ``selection of the interested [non-independent] board members
should require supermajority voting approval'' and that ``an
election of an interested board member should require an affirmative
vote of 67 [percent] of all sectors.'' Id. at 70.
---------------------------------------------------------------------------

    263. Further, some commenters contend that a hybrid board composed
of both independent and stakeholder members could complicate and impede
effective board decision-making because of the effort of non-
independent stakeholders to serve their own interests.\265\ They note
that a hybrid board is far more likely to be unwieldy and ineffective
because of the need to represent so many different market interests.
Several commenters also argue that the Commission does not have the
legal authority to dictate the composition of the board of a
Commission-regulated entity.\266\
---------------------------------------------------------------------------

    \265\ E.g., Alcoa at 28; DC Energy at 10; California PUC at 35.
    \266\ See, e.g., California PUC at 35 (citing Cal. Indep. Sys.
Operator Corp. v. FERC, 372 F.3d 395 (DC Cir. 2004)).
---------------------------------------------------------------------------

b. Comments on the Board Advisory Committee Approach
    264. Many commenters indicate that having a board advisory
committee is the preferable approach to achieving the Commission's goal
of improving responsiveness of RTOs and ISOs.\267\ They state that a
board advisory committee with a wide range of stakeholder interests
that has direct access to the board of directors would increase RTO and
ISO responsiveness and be the most effective way to balance the
interests of stakeholders.
---------------------------------------------------------------------------

    \267\ E.g., California PUC at 36; Comverge at 12; Suez at 9; Old
Dominion at 31; OPSI at 42; Joint Consumer Advocates at 24; North
Carolina Commission at 9; NARUC at 12; Pepco at 22-23; Xcel at 27-
28.
---------------------------------------------------------------------------

    265. Several commenters state that a board advisory committee would
be a good starting point for improving communications between the board
and stakeholders. For example, North Carolina Electric Membership
believes that a board advisory committee would allow stakeholders to
provide and receive strategic insight to the boards.\268\ In addition
to such a committee, it notes the need for more opportunities for
communication between the board and the stakeholders. Such
communication can be achieved by board member attendance at major
stakeholder meetings and by board solicitation of stakeholder position
papers on relevant

issues.\269\ A few of the commenters also note that they support open
RTO and ISO board meetings.\270\
---------------------------------------------------------------------------

    \268\ North Carolina Electric Membership at 4.
    \269\ For example, North Carolina Electric Membership suggests
``town hall'' sessions for members where board attendance is
required on topics derived by the liaison committee (i.e., board
advisory committee). It also notes that requiring the board to
explain the basis for its decision on particular issues in writing
could improve communication and add transparency to the process.
North Carolina Electric Membership at 5.
    \270\ For example, the OMS believes that an open board meeting
would allow stakeholders to assess the nature and quality of the
information being provided to the board, whether the board has
adequately understood and considered stakeholder issues and
concerns, and whether the board has made a fair and balanced
decision. OMS at 43. In contrast, SMUD does not support open board
meetings, but suggests that a better alternative may be for boards
to hold technical sessions with stakeholders for information
gathering before board meetings take place. SMUD at 22.
---------------------------------------------------------------------------

    266. Some commenters suggest guidelines on how a board advisory
committee should be structured and how it should function. For example,
OPSI states that the board advisory committee: (1) Must have authority
to make recommendations directly to the board on matters before the
board and on matters it believes the board should address; (2) must be
required to allow for the communication of minority views to the board;
and (3) should have membership limited to a reasonable number of
individuals.\271\ OPSI and NARUC recommend that state commissions and
state consumer advocates be entitled to representation on the board
advisory committee.\272\ North Carolina Commission proposes that the
board advisory committee should be given the right to suggest nominees
to board positions and that the RTO and ISO board could be required to
respond in writing to proposals submitted by the advisory committee.
---------------------------------------------------------------------------

    \271\ OPSI at 43.
    \272\ Id. See also NARUC at 12.
---------------------------------------------------------------------------

    267. Additionally, LPPC states that a board advisory committee must
be closely involved in RTO and ISO board discussions, must represent a
broader range of stakeholder interests, and should supplement, not
replace, existing stakeholder representation on operating technical
committees.\273\
---------------------------------------------------------------------------

    \273\ LPPC at 17. See also Industrial Consumers at 41
(suggesting that a board advisory committee should be balanced, be
charged with electing the board members, and be responsible for
approving any changes in the bylaws).
---------------------------------------------------------------------------

c. Comments on the Need To Increase Management Responsiveness
    268. APPA, TAPS, and the Connecticut and Massachusetts Municipals
recommend that RTO and ISO mission statements and/or charters clearly
define consumer-oriented goals. They recommend that these documents be
modified to require the RTO or ISO to provide ``reliable service at the
lowest possible reasonable rates,'' \274\ or similar wording to that
effect. APPA would include an explicit obligation that the RTO or ISO
work to reduce power costs to consumers.
---------------------------------------------------------------------------

    \274\ TAPS at 33.
---------------------------------------------------------------------------

    269. Several commenters also addressed the topic of performance
criteria for executive managers' responsiveness to stakeholder and
consumer interests. For example, DC Energy supports the Commission
requiring each RTO and ISO to take steps to ensure management
responsiveness, such as stakeholder input on public strategic plans,
periodic measurement of customer satisfaction, and RTO- or ISO-
developed performance criteria for executive managers with a focus on
reliability and market efficiency criteria.\275\ North Carolina
Commission suggests the Commission focus on measures of responsiveness
such as timely responses to customer or stakeholder requests.\276\ The
North Carolina Commission also suggests that the Commission should
focus on behavior-based measures to improve RTO and ISO effectiveness,
such as whether the RTO and ISO has clear staff assignments; whether it
has contact information easily available on its Web site; the length of
time for a stakeholder to secure an answer to a question; how long it
takes a market participant to receive a correction of a billing or
settlement error; and how often transmission service or interconnection
studies are delayed. LPPC suggests four areas that should be covered in
performance measures include accomplishment of the mission, ability to
meet budget projections, compliance with NERC standards, and measured
stakeholder satisfaction.\277\ CAISO supports Commission adoption of
performance criteria for executive managers, stating that it has
already implemented most of the ANOPR proposals, including an incentive
compensation program for all employees that contains specific goals for
improving stakeholder processes and timely response to stakeholder
inquiries.\278\
---------------------------------------------------------------------------

    \275\ DC Energy at 10.
    \276\ North Carolina Commission at 9-10.
    \277\ LPPC at 19.
    \278\ CAISO at 14.
---------------------------------------------------------------------------

d. Comments on Regional Differences
    270. In addition to the two approaches described in the ANOPR,
several commenters suggest that the Commission should allow for
regional differences, and not administer a one-size-fits-all
approach.\279\ Instead, given the differences among RTOs and ISOs in
governance and stakeholder needs, the Commission should require RTOs
and ISOs to work with customers and other stakeholders to create
programs specific to each regional entity. For example, EEI notes that
it is important that each RTO and ISO have the flexibility to adopt the
means of direct stakeholder access that is most effective for that
particular RTO or ISO.\280\ NARUC also notes that stakeholder
representation in RTO and ISO processes is not uniform across all
sectors; therefore, it urges the Commission to review RTO and ISO
processes to ensure equivalent treatment of all stakeholders.\281\
---------------------------------------------------------------------------

    \279\ E.g., Allegheny at 7; ISO-NE at 31-33; EPSA at 50; Pepco
at 23; SPP at 12-13; National Grid at 17-20; EEI at 57-61.
    \280\ EEI recommends that the Commission issue a policy
statement declaring that stakeholders should have effective direct
access to RTO and ISO boards and executive management. It also
argues that ``the Commission should not take any action that would
require the basic structure of RTOs and ISOs and their underlying
governing contracts, such as the transmission owners' agreement, to
be reopened without the consent of the parties involved.'' EEI at
59.
    \281\ NARUC at 13.
---------------------------------------------------------------------------

    271. OPSI recommends that the Commission not impose particular
mandates, but should express its intention to hold RTO and ISO boards
accountable, and leave it to the boards to develop appropriate ways to
ensure such responsiveness. OPSI also urges the Commission to establish
an annual opportunity for interested parties to submit an assessment of
the RTO's or ISO's performance in the preceding year to the
Commission.\282\
---------------------------------------------------------------------------

    \282\ OPSI at 45.
---------------------------------------------------------------------------

4. The Need for Commission Action
    272. In Order No. 2000, the Commission determined that independence
is a required characteristic necessary for an RTO to prevent any undue
discrimination and to bring benefits to market participants. In that
respect, the Commission stated that an RTO's decision-making process
must be independent in both reality and perception.\283\ The Commission
did not believe that detailed guidance regarding governance structure
was necessary given the early stage of RTO formation and the varying
structures of governance among regional entities. Instead, the
Commission required RTOs to have an ``open architecture'' so that the
organization and its members would have the necessary flexibility to
improve the structure, geographic scope, market scope, and operations
of the

organization. Although the Commission required that proposed changes
continue to satisfy RTO minimum characteristics and functions,\284\
open architecture allowed the original RTO design to evolve to reflect
changes in member needs.
---------------------------------------------------------------------------

    \283\ Order No. 2000, FERC Stats. & Regs. ] 31,089 at 31,061.
    \284\ Id. at 31,170.
---------------------------------------------------------------------------

    273. Since Order No. 2000 was issued, RTOs and ISOs have evolved.
Given the size and complexity of RTOs and ISOs today, it is not
surprising that tension has arisen between the goals of independent
decision-making and responsiveness to stakeholders, as an RTO or ISO
cannot satisfy every group on every issue. The RTO and ISO management
and boards of directors face increasing difficulty (as well as
increasing responsibility) in understanding the impact of their
decisions on the various stakeholder classes. Attempting to accommodate
stakeholders' needs on each issue has been a difficult task borne by
the boards and other employees of the RTOs and ISOs.
    274. Creating a mechanism and process to enable the board to be
responsive to the needs of stakeholders is critical to an independent
governance structure. Moreover, it is necessary for customers and other
stakeholders to have confidence in the decisions that come out of RTO
and ISO processes. Similarly, management responsiveness to customers
and stakeholders plays an important role in implementing the RTO and
ISO policies and achieving its objectives in a manner that customers
and other stakeholders perceive to be fair, balanced, and effective.
The Commission proposes a set of criteria, discussed below, for
assessing the mechanism or process by which an RTO or ISO achieves
board responsiveness to its members and customers.
5. Proposed Reform
    275. The Commission proposes to require each RTO and ISO to
demonstrate in a compliance filing that it is achieving RTO and ISO
responsiveness, and we propose to assess the filed practices or
procedures for achieving RTO and ISO board responsiveness using the
following criteria: (1) Inclusiveness; (2) fairness in balancing
diverse interests; (3) representation of minority positions; and (4)
ongoing responsiveness. We believe that access by customers and other
stakeholders to the board based on these criteria will provide them
with the opportunity to ensure that their concerns are considered. We
also believe that any RTO or ISO practices or procedures that satisfy
these criteria will ensure that RTO and ISO boards and management are
reasonably responsive to the needs of RTO and ISO members and
customers.
    276. Accordingly, an RTO or ISO must comply with this proposed
requirement by submitting a filing that proposes changes to its
responsiveness practices and procedures to comply with the proposed
requirement or that demonstrates its practices and procedures already
satisfy the requirement for responsiveness. This filing would be
submitted within six months of the date the final rule is published in
the Federal Register. The Commission will assess whether each filing
satisfies the proposed requirement and issue additional orders as
necessary.
    277. The Commission agrees with commenters that a one-size-fits-all
approach may not be beneficial given the varying structure and needs of
each regional entity. Therefore, instead of prescribing a specific
mechanism for all RTOs and ISOs, the Commission proposes to take a
flexible approach. Various mechanisms may satisfy the proposed
criteria. We encourage each RTO or ISO to develop a mechanism that best
suits its own governance structure and stakeholder needs. The
Commission presented two options for consideration, the board advisory
committee and the hybrid board.\285\ While we view the board advisory
committee as a particularly strong mechanism for enhancing
responsiveness, the Commission expects each RTO or ISO and its
stakeholders to develop the mechanism that best suits its needs.
---------------------------------------------------------------------------

    \285\ Any RTO or ISO that chooses to propose a hybrid board
structure must ensure that the non-independent board members
constitute less than a majority of the board and must limit the
eligibility to be a non-independent board member to market
participants in that RTO or ISO market.
---------------------------------------------------------------------------

    278. We seek comment, however, on whether RTOs and ISOs should be
encouraged, or required, to base their process for selecting non-
independent members of the board or of a board advisory committee on a
supermajority vote of eligible stakeholders.
    279. We propose to require each RTO and ISO, in its compliance
filing, to demonstrate that it has satisfied the following criteria:
     Inclusiveness--The practices and procedures must ensure
that any customer or other stakeholder affected by the operation of the
RTO or ISO, or its representative is permitted to communicate its views
to the RTO or ISO board.
     Fairness in Balancing Diverse Interests--The practices and
procedures must ensure that the interests of customers or other
stakeholders are equitably considered and that deliberation and
consideration of RTO and ISO issues are not dominated by any single
stakeholder category.
     Representation of Minority Positions--The practices and
procedures must ensure that, in instances where stakeholders are not in
total agreement on a particular issue, minority positions are
communicated to the board at the same time as majority positions.
     Ongoing Responsiveness--The practices and procedures must
provide for stakeholder input into RTO or ISO decisions as well as
mechanisms to provide feedback to stakeholders to ensure that
information exchange and communication continue over time.
    280. The Commission proposes to require that each RTO and ISO post
on its Web site a mission statement or charter for its organization.
The Commission encourages each RTO and ISO to set forth in these
documents the organization's purpose, guiding principles, and
commitment to responsiveness to customers and other stakeholders, and
ultimately to the consumers who benefit from and pay for electricity
services.
    281. We also encourage each RTO and ISO to ensure that its
management programs, including, but not limited to, incentive
compensation plans for executive managers, give appropriate weight to
stakeholder responsiveness. Such plans should give appropriate
consideration to important service delivery goals such as reducing
congestion costs, timely response to transmission service requests,
prompt resolution of statements, billing, and disputes, and other
customer service measures of performance.\286\
---------------------------------------------------------------------------

    \286\ The Commission understands that RTO and ISO executive
management compensation plans may already be based on various
measures of performance. If these already adequately take account of
customer responsiveness, the RTO or ISO may report this in its
compliance filing.
---------------------------------------------------------------------------

V. Applicability of the Proposed Rule and Compliance Procedures

    282. The Commission has a responsibility under FPA sections 205 and
206 to ensure that the rates, charges, classifications, and service of
public utilities (and any rule, regulation, practice, or contract
affecting any of these) are just and reasonable and not unduly
discriminatory, and to remedy undue discrimination in the provision of
such services. Our action in this NOPR proposes to fulfill those
responsibilities by proposing reforms to improve the operation of
organized

wholesale markets. It is necessary to remedy any problems in wholesale
markets to ensure that rates and services in RTO and ISO markets remain
just and reasonable and not unduly discriminatory.
    283. The Commission proposes to apply the final rule in this
proceeding to all RTOs and ISOs by requiring them to demonstrate
compliance with the proposed requirements discussed in each section of
the NOPR: (1) Demand response; (2) long-term power contracting; (3)
market monitoring; and (4) RTO and ISO responsiveness. The Commission
proposes to require each RTO and ISO to report to the Commission, on
the deadlines specified below or six months following its certification
as an RTO or commencement of operations as an ISO, that describes
whether the entity is already in compliance with the requirements of
the final rule, or describing its plans to attain compliance, including
a timeline with intermediate deadlines and appropriate proposed tariff
and market rule revisions. The Commission will assess whether each
filing satisfies the proposed requirements and issue further orders for
each RTO and ISO.
    284. For the proposed requirements under demand response, the
filing addressing ancillary services and deviation charges, and the
filing for ARCs and shortage pricing must be submitted within six
months of the date the final rule is published in the Federal Register.
    285. The filing to comply with the proposed requirements regarding
long-term contracts, MMU reforms and RTO responsiveness must be
submitted within six months of the date the final rule is published in
the Federal Register.

VI. Information Collection Statement

    286. The Office of Management and Budget (OMB) regulations require
approval of certain information collection requirements imposed by
agency rules.\287\ Upon approval of a collection(s) of information, OMB
will assign an OMB control number and an expiration date. Respondents
subject to the filing requirements of this rule will not be penalized
for failing to respond to these collections of information unless the
collections of information display a valid OMB control number. This
NOPR amends the Commission's regulations to improve the operation of
organized wholesale electric power markets. The objective of this
proposed rule is to improve market design and competition in organized
markets. Through this rule the Commission hopes to provide remedies by
ensuring (1) that new criteria are established so RTOs and ISOs are
responsive to their customers and stakeholders; (2) improve market
monitoring within RTOs and ISOs by requiring them to provide their
Market Monitoring Units with access to market data and sufficient
resources to perform their duties; (3) transparency in the marketplace
by requiring RTOs and ISOs to dedicate portions of their Web sites so
market participants can avail themselves of information concerning
offers to buy or sell power on a long-term basis; and (4) require RTOs
and ISOs to institute certain reforms in the demand response programs
to remove several disincentives and barriers to provide for more
efficient operation of markets while at the same time encouraging new
technologies. Filings by RTOs and ISOs would be made under Part 35 of
the Commission's regulations. The information provided for under Part
35 is identified as FERC-516.
---------------------------------------------------------------------------

    \287\ 5 CFR 1320.11 (2007).
---------------------------------------------------------------------------

    287. The Commission is submitting these reporting requirements to
OMB for its review and approval under section 3507(d) of the Paperwork
Reduction Act.\288\ Comments are solicited on the Commission's need for
this information, whether the information will have practical utility,
the accuracy of provided burden estimates, ways to enhance the quality,
utility, and clarity of the information to be collected, and any
suggested methods for minimizing the respondent's burden, including the
use of automated information techniques.
---------------------------------------------------------------------------

    \288\ 44 U.S.C. 3507(d) (2000).
---------------------------------------------------------------------------

    Burden Estimate: The Public Reporting burden for the requirements
contained in the NOPR is as follows:

----------------------------------------------------------------------------------------------------------------
                                                     Number of       Number of       Hours per     Total annual
                 Data collection                    respondents      responses       response          hours
----------------------------------------------------------------------------------------------------------------
FERC-516 Task Allow demand response to provide                 6               1             433           2,598
 certain ancillary services.....................
Remove certain deviation charges................               5               1             288           1,440
Permit aggregation of Retail Customers..........               6               1           102.5             615
Allow pricing to ration demand during a shortage               6               1             649           3,894
Long-term contract postings.....................               6               1              30             180
MMUs............................................               6               1             129             774
Require RTO board responsiveness to customers...               6               1             180            1080
Require RTO self-assessment.....................               6               1             650           3,900
                                                 ---------------------------------------------------------------
    Totals......................................  ..............  ..............  ..............          14,481
----------------------------------------------------------------------------------------------------------------

    Total Annual Hours for Collection: (Reporting + recordkeeping, (if
appropriate)) = Total hours for performing tasks 1 through 8 as
identified above = 14,481 hours.
    Information Collection Costs: The Commission seeks comments on the
costs to comply with these requirements. It has projected the average
annualized cost to be:

Legal expertise = $473,526 (2,368 hours @ $200 an hour)
Technical Expertise = $712,038 (4,747 hours @ $150 an hour) (RTO/ISO
Senior Staff, Stakeholder participants)
Administrative Support = $108,701 (2,718 hours @ $40 an hour)
IT Support = $236,448 (2,489 hours @ $95 an hour)
Participatory Expenditures = $2,160,000 (96 participants @ $1,000 per
day on average 4.5 days per activity for five of the eight activities
identified above)
Total = $3,690,713
    * Differences in RTO/ISO staff hourly rates are to differentiate
between administrative support staff and senior staff.
    Total cost estimates: $3,690,713.
    Title: FERC-516 ``Electric Rate Schedule Filings''.
    Action: Proposed Collections.
    OMB Control No: 1902-0096.
    Respondents: Business or other for profit, and/or not for profit
institutions.
    Frequency of Responses: One time to initially comply with the rule,
and then

on occasion as needed to revise or modify.
    Necessity of the Information: This proposed rule, if adopted, would
further the improvement of competitive wholesale electric markets and
the provision of transmission services in the RTO and ISO regions. The
Commission recognizes that significant differences exist among the
regions, industry structures, and sources of electric generation,
population demographics and even weather patterns. In fulfilling its
responsibilities under sections 205 and 206 of the Federal Power Act,
the Commission is required to address, and has the authority to remedy,
undue discrimination and anticompetitive effects.
    Internal review: The Commission has reviewed the requirements
pertaining to transmission organizations with organized electricity
markets and determined the proposed requirements are necessary to meet
the provisions of the Federal Power Act.
    288. These requirements conform to the Commission's plan for
efficient information collection, communication and management within
the energy industry. The Commission has assured itself, by means of
internal review, that there is specific, objective support for the
burden estimates associated with the information requirements.
    289. Interested persons may obtain information on the reporting
requirements by contacting: Federal Energy Regulatory Commission, 888
First Street, NE., Washington, DC 20426, Attention: Michael Miller,
Office of the Executive Director, Phone:<PHONE_NUMBER>, fax: (202)
273-0873, e-mail<EMAIL_ADDRESS>Comments on the requirements
of the proposed rule may also be sent to the Office of Information and
Regulatory Affairs, Office of Management and Budget, Washington, DC
20503, Attention: Desk Officer for the Federal Energy Regulatory
Commission, fax<PHONE_NUMBER>, e-mail<EMAIL_ADDRESS>
VII. Environmental Analysis

    290. The Commission is required to prepare an Environmental
Assessment or an Environmental Impact Statement for any action that may
have a significant adverse effect on the human environment.\289\ The
Commission concludes that neither an Environmental Assessment nor an
Environmental Impact statement is required for this NOPR under section
380.4(a)(15) of the Commission's regulations, which provides a
categorical exemption for approval of actions under sections 205 and
206 of the FPA relating to the filing of schedules containing all rates
and charges for the transmission or sale subject to the Commission's
jurisdiction, plus the classification, practices, contracts, and
regulations that affect rates, charges, classifications, and
services.\290\
---------------------------------------------------------------------------

    \289\ Regulations Implementing the National Environmental Policy
Act, Order No. 486, FERC Stats. & Regs. ] 30,783 (1987).
    \290\ 18 CFR 380.4(a)(15) (2007).
---------------------------------------------------------------------------

VIII. Regulatory Flexibility Act Certification

    291. The Regulatory Flexibility Act of 1980 (RFA) \291\ generally
requires a description and analysis of rules that will have significant
economic impact on a substantial number of small entities. Most, if not
all, of the transmission organizations to which the requirements of
this rule would apply do not fall within the definition of small
entities.\292\
---------------------------------------------------------------------------

    \291\ 5 U.S.C. 601-12 (2000).
    \292\ The RFA definition of ``small entity'' refers to the
definition provided in the Small Business Act, which defines a
``small business concern'' as a business that is independently owned
and operated and that is not dominant in its field of operation. See
5 U.S.C. 601(3), citing to Section 3 of the Small Business Act, 15
U.S.C. 632 (2000). The Small Business Size Standards component of
the North American Industry Classification system defines a small
utility as one that, including its affiliates is primarily engaged
in the generation, transmission, or distribution of electric energy
for sale, and whose total electric output for the preceding fiscal
years did not exceed 4 MWh. 13 CFR 121.202 (Sector 22, Utilities,
North American Industry Classification System, NAICS) (2004).
---------------------------------------------------------------------------

    Those entities to be impacted directly by this rule include the
following:
     California Independent Service Operator Corp. (CAISO) is a
nonprofit organization comprised of more than 90 electric transmission
companies and generators operating in its markets and serving more than
30 million customers.
     New York Independent System Operator, Inc. (NYISO) is a
nonprofit organization that oversees wholesale electricity markets
serving 19.2 million customers. NYISO manages a 10,775-mile network of
high-voltage lines.
     PJM Interconnection, LLC (PJM) is comprised of more than
450 members including power generators, transmission owners,
electricity distributors, power marketers and large industrial
customers and serving 13 states and the District of Columbia.
     Southwest Power Pool, Inc. (SPP) is comprised of 50
members serving 4.5 million customers in 8 states and has 52,301 miles
of transmission lines.
     Midwest Independent Transmission System Operator, Inc.
(Midwest ISO) is a nonprofit organization with over 131,000 megawatts
of installed generation. Midwest ISO has 93,600 miles of transmission
lines and serves 15 states and one Canadian province.
     ISO New England Inc. (ISO-NE) is a regional transmission
organization serving 6 states in New England. The system is comprised
of more than 8,000 miles of high voltage transmission lines and several
hundred generating facilities of which more than 350 are under ISO-NE's
direct control.
    Therefore, the Commission certifies that this rule will not have a
significant economic impact on a substantial number of small entities.
Accordingly, no regulatory flexibility analysis is required.

IX. Comment Procedures

    292. The Commission invites interested persons to submit comments
on the matters and issues proposed in this notice to be adopted,
including any related matters or alternative proposals that commenters
may wish to discuss. Comments are due April 21, 2008. Comments must
refer to Docket Nos. AD07-7-000 and RM07-19-000, and must include the
commenter's name, the organization they represent, if applicable, and
their address in their comments.
    293. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's Web site at http://
www.ferc.gov. The Commission accepts most standard word processing
formats. Documents created electronically using word processing
software should be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
    294. Commenters that are not able to file comments electronically
must send an original and 14 copies of their comments to: Federal
Energy Regulatory Commission, Secretary of the Commission, 888 First
Street, NE., Washington, DC 20426.
    295. All comments will be placed in the Commission's public files
and may be viewed, printed, or downloaded remotely as described in the
Document Availability section below. Commenters on this proposal are
not required to serve copies of their comments on other commenters.

X. Document Availability

    296. In addition to publishing the full text of this document in
the Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through FERC's Home Page (http://www.ferc.gov)

and in FERC's Public Reference Room during normal business hours (8:30
a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A,
Washington DC 20426.
    297. From FERC's Home Page on the Internet, this information is
available on eLibrary. The full text of this document is available on
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or
downloading. To access this document in eLibrary, type the docket
number excluding the last three digits of this document in the docket
number field.
    298. User assistance is available for eLibrary and the FERC's Web
site during normal business hours from FERC Online Support at 202-502-
6652 (toll free at 1-866-208-3676) or e-mail at
<EMAIL_ADDRESS>or the Public Reference Room at (202) 502-
8371, TTY<PHONE_NUMBER>. E-mail the Public Reference Room at
<EMAIL_ADDRESS>
List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and
recordkeeping requirements.

    By direction of the Commission. Commissioner Kelly concurring in
part and dissenting in part with a separate statement attached.
Commissioner Wellinghoff concurring with a separate statement attached.

 Nathaniel J. Davis, Sr.,
Deputy Secretary.
    In consideration of the foregoing, the Commission proposes to amend
part 35, Chapter I, Title 18, of the Code of Federal Regulations, as
follows:

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

    1. The authority citation for part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42
U.S.C. 7101-7352.

    2. Amend Sec.  35.28 as follows:
    a. Amend paragraph (b) to add paragraphs (b)(4), (b)(5), (b)(6),
and (b)(7).
    b. Add a new paragraph (g).

Sec.  35.28  Non-discriminatory open access transmission tariff.

* * * * *
    (b) * * *
    (4) Demand response means a reduction in the consumption of
electric energy by customers from their expected consumption in
response to an increase in the price of electric energy or to incentive
payments designed to induce lower consumption of electric energy.
    (5) Demand response resource means a resource capable of providing
demand response.
    (6) An operating reserve shortage means a period when the amount of
available supply falls short of demand plus the operating reserve
requirement.
    (7) Market Monitoring Unit (MMU) means the person or entity
responsible for carrying out the market monitoring functions which the
Commission has ordered Commission-approved ISOs and RTOs to perform.
* * * * *
    (g) Tariffs and operations of Commission-approved ISOs and RTOs--
(1) Demand response and pricing. (i) Ancillary services provided by
demand response resources. (A) Every Commission-approved ISO and RTO
that operates organized markets based on competitive bidding for energy
imbalance, spinning reserves, supplemental reserves, reactive power and
voltage control, and regulation and frequency response ancillary
services (or its functional equivalent in the Commission-approved ISO's
or RTO's tariff) must accept bids from demand response resources in
these markets for that product on a basis comparable to any other
resources, if the demand response resource meets the necessary
technical requirements under the tariff and submits a bid under the
Commission-approved ISO's or RTO's bidding rules at or below the
market-clearing price, unless the laws or regulations of the relevant
retail regulatory authority do not permit a retail customer to
participate.
    (B) The Commission-approved ISO or RTO must allow providers of a
demand response resource to specify the following in their bids:
    (1) A maximum duration in hours that the demand response resource
may be dispatched;
    (2) A maximum number of times that the demand response resource may
be dispatched during a day; and
    (3) A maximum amount of electric energy that the demand response
resource may be required to provide either daily or weekly.
    (ii) Removal of deviation charges. A Commission-approved ISO or RTO
with a tariff that contains a day-ahead and a real-time market may not
assess a charge to a purchaser of electric energy in its day-ahead
market for purchasing less power in the real-time market during a real-
time market period for which the Commission-approved ISO or RTO
declares an operating reserve shortage or makes a generic request to
reduce load to avoid an operating reserve shortage.
    (iii) Aggregation of retail customers. Commission-approved ISOs or
RTOs must permit a qualified aggregator of retail customers to bid a
demand response on behalf of retail customers directly into the
Commission-approved ISO's or RTO's organized markets, unless the laws
and regulations of the relevant electric retail regulatory authority do
not permit a retail customer to participate.
    (iv) Price formation during periods of operating reserve shortage.
(A) Commission-approved ISOs and RTOs must modify their market rules to
allow the market-clearing price during periods of operating reserve
shortage to reach a level that rebalances supply and demand so as to
maintain reliability while providing sufficient provisions for
mitigating market power.
    (B) A Commission-approved ISO or RTO may phase in this modification
of its market rules.
    (2) Long-term power contracting in organized markets. A Commission-
approved ISO or RTO must provide a portion of its Web site for market
participants to post offers to buy or sell power on a long-term basis.
    (3) Market monitoring policies. (i) Commission-approved ISOs and
RTOs must modify their tariff provisions governing their Market
Monitoring Units to reflect the directives provided in Order No.
[insert order number], including the following:
    (A) Commission-approved ISOs and RTOs must include in their tariffs
a provision to provide their Market Monitoring Units access to
Commission-approved ISO and RTO market data, resources and personnel to
enable the Market Monitoring Unit to carry out their functions.
    (B) The tariff provision must provide the Market Monitoring Unit
complete access to the Commission-approved ISO's and RTO's database of
market information.
    (C) The tariff provision must provide that any data created by the
Market Monitoring Unit, including, but not limited to, reconfiguring of
the Commission-approved ISO's and RTO's data, will be kept within the
exclusive control of the Market Monitoring Unit.
    (D) The Market Monitoring Unit must report to the Commission-
approved ISO or RTO board of directors, with its management members
removed, or to an independent committee of the Commission-approved ISO
or RTO board of directors. A Commission-approved ISO and RTO that has
both an internal MMU and an external MMU may permit the internal MMU to
report to management and the external MMU to report to the Commission-
approved ISO or RTO board of directors with its management members
removed, or to an

independent committee of the Commission-approved ISO or RTO board of
directors.
    (E) Commission-approved ISOs and RTOs may not alter the reports
generated by the Market Monitoring Unit, or dictate the conclusions
reached by the Market Monitoring Unit.
    (F) Commission-approved ISOs and RTOs must consolidate the core
Market Monitoring Unit provisions into one section in their tariffs as
provided in paragraph (g)(6) of this section.
    (ii) Functions of Market Monitoring Unit. The Market Monitoring
Unit must perform the following functions:
    (A) Evaluate existing and proposed market rules, tariff provisions
and market design elements for their effectiveness and recommend
proposed rule and tariff changes to the Commission-approved ISO or RTO,
to the Commission's Office of Energy Market Regulation staff and to
other interested entities such as state commissions and market
participants.
    (B) Review and report on the performance of the wholesale markets
to the Commission-approved ISO or RTO, the Commission, and other
interested entities such as state commissions and market participants
on at least a quarterly basis and submit a more comprehensive annual
state of the market report. The Market Monitoring Unit may issue
additional reports as necessary.
    (C) Identify and notify the Commission's Office of Enforcement
staff of instances in which a market participant's or the Commission-
approved ISO's or RTO's behavior may require investigation, including,
but not limited to, suspected rule or tariff violations, market
manipulation, inappropriate dispatch, and suspected violations of
Commission-approved rules and regulations.
    (D) The Market Monitoring Unit, whether internal or external, may
not participate in the administration of the Commission-approved ISO's
or RTO's tariff, including mitigation.
    (iii) Market Monitoring Unit ethical standards. Commission-approved
ISOs and RTOs must include ethical standards for employees in their
Market Monitoring Units. At a minimum, the ethical standards must
include the following requirements:
    (A) Market Monitoring Unit employees must have no material
affiliation with any market participant or affiliate.
    (B) Market Monitoring Unit employees must not serve as an officer,
employee, or partner of a market participant.
    (C) Market Monitoring Unit employees must have no material
financial interest in any market participant or affiliate with
potential exceptions for mutual funds and non-directed investments.
    (D) Market Monitoring Unit employees must not engage in any market
transactions other than the performance of their duties under the
tariff.
    (E) Market Monitoring Unit employees must not be compensated for
any expert witness testimony or other commercial services to the
Commission-approved ISO or RTO or to any other party in connection with
any legal or regulatory proceeding or commercial transaction relating
to the Commission-approved ISO or RTO or to the Commission-approved ISO
or RTO markets.
    (F) Market Monitoring Unit employees may not accept anything of
value from a market participant in excess of a de minimis amount.
    (G) Market Monitoring Unit employees must advise a supervisor in
the event they seek employment with a market participant, and must
disqualify themselves from participating in any matter that would have
an effect on the financial interest of the market participant.
    (4) Offer and bid data. (i) Unless a Commission-approved ISO or RTO
obtains Commission approval for a different period, Commission-approved
ISOs and RTOs must release their offer and bid data within three
months.
    (ii) Commission-approved ISOs and RTOs may mask the identity of
market participants when releasing offer and bid data.
    (5) Responsiveness of Commission-approved ISOs and RTOs.
Commission-approved ISOs and RTOs must adopt business practices and
procedures that achieve Commission-approved ISO and RTO board of
directors' responsiveness to customers and other stakeholders and
satisfy the following criteria:
    (i) Inclusiveness. The practices and procedures must ensure that
any customer or stakeholder affected by the operation of the
Commission-approved ISO or RTO, or its representative, is permitted to
communicate its views to the RTO or ISO board;
    (ii) Fairness in balancing diverse interests. The practices and
procedures must ensure that the interests of customers or other
stakeholders are equitably considered and that deliberation and
consideration of Commission-approved ISO and RTO issues are not
dominated by any single stakeholder category;
    (iii) Representation of minority positions. The practices and
procedures must ensure that, in instances where stakeholders are not in
total agreement on a particular issue, minority positions are
communicated to the board of directors at the same time as majority
positions; and
    (iv) Ongoing responsiveness. The practices and procedures must
provide for stakeholder input into RTO or ISO decisions as well as
mechanisms to provide feedback to stakeholders to ensure that
information exchange and communication continue over time.
    (6) Compliance filings. All Commission-approved ISOs and RTOs must
make a compliance filing with the Commission as described in Order No.
[insert order number] under the following schedule:
    (i) The compliance filing addressing the accepting of bids from
demand response resources in markets for ancillary services on a basis
comparable to other resources, removal of deviation charges,
aggregation of retail customers, shortage pricing during periods of
operating reserve shortage, long-term power contracting in organized
markets, Market Monitoring Units, Commission-approved ISO and RTO board
of directors' responsiveness, and reporting on the study of the need
for further reforms to remove barriers to comparable treatment of
demand response resources must be submitted on or before [insert date
that is six months after date of publication of Final Rule in the
Federal Register].
    (ii) A public utility that is approved as a Regional Transmission
Organization under Sec.  35.34 of this part, or that is not approved
but begins to operate regional markets for electric energy or ancillary
services after [insert effective date of Final Rule], must comply with
Order No. [insert order number] and the provisions of paragraphs (g)(1)
through (g)(5) of this section before beginning operations.

    Note: The following appendices will not appear in the Code of
Federal Regulations.

Appendix A: Commenter Acronyms Commenters to the ANOPR in Docket Nos.
RM07-19-000 and AD07-7-000

    AARP, et al.--AARP; American Antitrust Institute; American
Chemistry Council; American Forest & Paper Association; American
Iron and Steel Institute; American Municipal Power-Ohio; American
Public Power Association; Association of Businesses Advocating
Tariff Equity; Citizen Power; Citizens Utility Board of Illinois;
Coalition of Midwest Transmission Customers; Colorado Office of
Consumer Counsel; Consumer Federation of America; Council of
Industrial Boiler Owners; Democracy and Regulation;

Electricity Consumers Resource Council; Florida Industrial Power
Users Group; Illinois Industrial Energy Consumers; Illinois Public
Interest Research Group; Industrial Energy Consumers of America;
Industrial Energy Consumers of Pennsylvania; Industrial Energy
Users-Ohio; Louisiana Energy Users Group; Maryland Office of the
People's Counsel; Maryland Public Interest Research Group; Missouri
Industrial Energy Consumers; National Association of State Utility
Consumer Advocates; NEPOOL Industrial Customer Coalition; Office of
the People's Counsel of the District of Columbia; Ohio Hospital
Association, Ohio Manufacturers' Association; Ohio Partners for
Affordable Energy; PJM Industrial Customer Coalition, Portland
Cement Association; Power in the Public Interest, Public Citizen,
Inc.; Public Utility Law Project of New York, Inc.; Steel
Manufacturers Association; West Virginia Energy Users Group;
Wisconsin Industrial Energy Group, Inc.; and Wisconsin Paper
Council.
    AEP--American Electric Power Service Corporation.
    Alcoa--Alcoa, Inc.
    Allegheny Energy--Allegheny Power and Allegheny Energy Supply
Company, LLC.
    Ameren--Ameren Services Company.
    American Forest--American Forest & Paper Association.
    APPA--American Public Power Association.
    ATC--American Transmission Company, LLC.
    AWEA--American Wind Energy Association.
    Blue Ridge--Blue Ridge Power Agency.
    BlueStar Energy--BlueStar Energy Services, Inc.
    BP Energy--BP Energy Company.
    Cal DWR--California Department of Water Resources State Water
Project.
    CAISO--California Independent System Operator Corporation.
    California Munis--California Municipal Utilities Association.
    California PUC--California Public Utilities Commission.
    COMPETE Coalition--171 various entities.
    COMPETE, et al.--7-Eleven, Inc.; Allegheny Energy, Alliance for
Real Energy Options; Alliance for Retail Choice, Alliance for Retail
Energy Markets; Alliance for Retail Markets; Ardmore Power
Logistics; Professor Ross Baldick, IEEE Fellow, Department of
Electrical and Computer Engineering, The University of Texas at
Austin; Big Lots Stores, Inc.; Nora Mead Brownell, BC Consulting,
former FERC Commissioner and former PaPUC Commissioner; H. Sterling
Burnett, PhD., Senior Fellow, National Center for Policy Analysis;
California Alliance for Competitive Energy Solutions; California
Grocers Association; California Retailers Association; Laura
Chappelle, Attorney, former Chairman, MI PSC; Colorado Independent
Energy Association; Constellation Energy; Comverge, Maryland; DC
Energy, LLC; David W. DeRamus, Partner, Bates White, LLC; Direct
Energy Services, LLC; Richard A. Drom, Partner, Powell Goldstein
LLP; Edison Mission Energy; Electric Power Supply Association;
Electric Power Generation Association; Energy Association of
Pennsylvania; Energy Curtailment Specialists, Inc.; Enermetrix;
Enerwise Global Technologies; Exelon Corporation; FirstEnergy Corp.;
William L. Flynn, Partner, Harris Beach PLLS, former Chairman, NY
PSC; John Hanger, former PaPUC Commissioner; Hess Corp.; William W.
Hogan, Raymond Plank Professor of Global Energy Policy, John F.
Kennedy School of Government, Harvard University; Illinois Energy
Association; Independent Power Producers of New York; JC Penny;
Kimball Resources, Inc.; Jerry J. Langdon, former FERC Commissioner;
LS Power Associates, LP; Luminant; Macy's Inc., Midwest Independent
Power Suppliers; Mirant Corporation; Elizabeth A. Moler, Exelon
Corp., former Chair of FERC; National Energy Marketers Association;
New England Energy Alliance; New England Power Generators
Association, Inc.; Northwest and Intermountain Power Producers
Coalition; NRG Energy, Inc.; Nuclear Energy Institute; PennFuture;
PetSmart, Inc.; Piney Creek LP; PJM Power Providers Group; PowerGrid
Systems, Inc.; PPL Corporation; Priority Power Management, Ltd.;
PSEG Companies; John M. Quain, Buchanan Ingersoll & Rooney PC,
former Chairman of PaPUC; Reliant Energy; Retail Energy Suppliers
Association; Safeway, Inc.; School Project for Utility Rate
Reduction; Sempra Energy; Shell Energy North America; Silicon Valley
Leadership Group; Vernon L. Smith, Nobel Laureate, Professor of
Economics and Law, Chapman University; David A. Svanda, Svanda
Consulting, former MI PSC Commissioner and former President of
NARUC; Glen Thomas, GT Power, former Chairman of PaPUC; Telga
Corporation; Texas Competitive Power Advocates; TXU Energy; Wal-Mart
Stores, Inc.; Western Power Trading Forum; and Pat Wood, III, former
Chairman of FERC and the PUCT.
    Comverge--Comverge, Inc.
    Connecticut and Massachusetts Municipals--Connecticut Municipal
Electric Energy Cooperative and Massachusetts Municipal Wholesale
Electric Company.
    Constellation--Constellation Energy Commodities Group, Inc.;
Constellation NewEnergy, Inc.; and Constellation Generation Group,
LLC.
    DC Energy--DC Energy, LLC.
    Detroit Edison--Detroit Edison Company.
    Dominion Resources--Dominion Resources Services, Inc.
    Duke Energy--Duke Energy Corporation.
    Dynegy--Dynegy Power Corporation.
    EEI--Edison Electric Institute and Alliance of Energy Suppliers.
    EnergyConnect--Energy Connect, Inc.
    Energy Curtailment--Energy Curtailment Specialists, Inc.
    EnerNOC--EnerNOC, Inc.
    EPSA--The Electric Power Supply Association.
    Exelon--Exelon Corporation.
    FTC--Federal Trade Commission.
    FirstEnergy--FirstEnergy Service Company, on behalf of
FirstEnergy Solutions Corp. and the transmission and distribution
owning utility subsidiaries of FirstEnergy Corp.: American
Transmission Systems, Inc.; The Cleveland Electric Illuminating
Company; Jersey Central Power and Light Company; Metropolitan Edison
Company; Ohio Edison Company; Pennsylvania Electric Company;
Pennsylvania Power Company; and The Toledo Edison Company.
    Mr. Hogan--William W. Hogan and Susan L. Pope.
    Indianapolis P&L--Indianapolis Power and Light Company.
    Industrial Coalitions--Coalition of Midwest Transmission
Customers; NEPOOL Industrial Customer Coalition; and PJM Industrial
Customer Coalition.
    Industrial Consumers--Electricity Consumers Resource Council;
American Iron and Steel Institute; and American Chemistry Council.
    ISO-NE--ISO New England, Inc.
    ISO/RTO Council--ISO/RTO Council: California Independent System
Operator Corporation; ISO New England, Inc.; the Midwest Independent
Transmission System Operator, Inc.; New York Independent System
Operator, Inc.; PJM Interconnection, LLC; Southwest Power Pool.
    ITC--International Transmission Company and Michigan Electric
Transmission Company, LLC.
    Integrys--Integrys Energy Services, Inc.
    J.Aron, Barclays, Morgan Stanley--J.Aron & Company, Barclays
Capital, and Morgan Stanley Capital Group Inc.
    Joint Consumer Advocates--Ohio Consumers Counsel; District of
Columbia Office of the People's Counsel; Pennsylvania Office of
Consumer Advocate; Illinois Citizens Utility Board; Maryland Office
of People's Counsel; and New Jersey Department of the Public
Advocate, Division of Rate Counsel.
    Kansas CC--Kansas Corporation Commission.
    LPPC--Large Public Power Council.
    Massachusetts AG--Massachusetts Attorney General.
    Mr. McCullough--Robert McCullough.
    Midwest ISO--Midwest Independent Transmission System Operator,
Inc.
    Midwest ISO TOs--Midwest ISO Transmission Owners.
    Mirant--Mirant Corporation.
    NARUC--National Association of Regulatory Utility Commissions.
    National Energy Marketers--National Energy Marketers
Association.
    National Grid--National Grid USA.
    NEPOOL Participants--NEPOOL Participants Committee.
    New England Conference--New England Conference of Public
Utilities Commissioners; Connecticut Department of Public Utility
Control; Massachusetts Department of Public Utilities; Massachusetts
Department of Energy Resources; New Hampshire Public Utilities
Commission; Rhode Island Public Utilities Commission; the Vermont
Department of Public Service; and Vermont Public Service Board.
    New England Power Generators--New England Power Generators
Association.
    New York PSC--New York State Public Service Commission.
    NJBPU--New Jersey Board of Public Utilities.
    NJ BPU Commissioner Bator--New Jersey Board of Public Utilities
Commissioner Christine V. Bator.

    North Carolina Commission--North Carolina Utilities Commission;
Public Staff--North Carolina Utilities Commission; and the Attorney
General of the State of North Carolina.
    North Carolina Electric Membership--North Carolina Electric
Membership Corporation.
    Northeast Utilities--Northeast Utilities.
    NRECA--National Rural Electric Cooperative Association.
    NRG--NRG Energy, Inc.
    NSTAR--NSTAR Electric Company.
    NYISO--New York Independent System Operator Corp.
    NY TOs--New York Transmission Owners.
    Ohio PUC--Public Utilities Commission of Ohio.
    Old Dominion--Old Dominion Electric Cooperative.
    OMS--Organization of MISO States.
    OPSI--Organization of PJM States, Inc.
    Otter Tail--Otter Tail Power Company.
    Pennsylvania PUC--Pennsylvania Public Utilities Commission.
    Pepco--Pepco Holdings, Inc.; Delmarva Power & Light Company;
Atlantic City Electric Company; Conectiv Energy Supply Inc.; and
Pepco Energy Services, Inc.
    PGC--PGC Electricity Committee.
    PG&E--Pacific Gas and Electric Company.
    PJM--PJM Interconnection, LLC.
    PJM Power Providers--PJM Power Providers Group.
    PJM MMU--Independent Market Monitoring Unit of PJM.
    Portland Cement--Portland Cement Association.
    Portland Cement Association, et al.--Multiple Intervenors; PJM
Industrial Customer Coalition; Connecticut Industrial Energy
Consumers; Industrial Energy Users-Ohio; Mittal Steel USA, Inc.
    Potomac Economics--Potomac Economics, Inc.
    Power in Public Interest--Power in the Public Interest.
    PPL Parties--PPL Parties.
    PSEG--PSEG Companies: Public Service Electric and Gas Company;
PSEG Power LLC and PSEG Energy Resources & Trade LLC.
    Public Interest Organizations--Center for Energy Efficiency &
Renewable Technologies; Connecticut Office of Consumer Counsel;
Conservation Law Foundation; Delaware Division of the Public
Advocate; Environmental Law & Policy Center; Fresh Energy, Natural
Resources Defense Council; New Hampshire Office of Consumer
Advocate; Office of the Ohio Consumers' Counsel; Pace Energy
Project; Project for Sustainable FERC Energy Policy; Renewable
Northwest Project; Union of Concerned Scientists and West Wind
Wires.
    Reliant--Reliant Energy, Inc.
    Safeway--Safeway, Inc.
    Silicon Valley Power--Silicon Valley Power.
    SMUD--Sacramento Municipal Utility District.
    SoCal Edison-SDG&E--Southern California Edison Company and San
Diego Gas & Electric.
    SPP--Southwest Power Pool, Inc.
    Steel Manufacturers--Steel Manufacturers Association.
    Steel Producers--Steel Producers.
    Strategic Energy--Strategic Energy, LLC.
    SUEZ--SUEZ Energy North America, Inc.
    TAPS--Transmission Access Policy Study Group.
    The Alliance--The Alliance For Retail Energy Markets.
    Utility Savings--Utility Savings & Refund, LLC.
    Wal-Mart--Wal-Mart Stores, Inc.
    Wisconsin Industrial--Wisconsin Industrial Energy Group.
    WSPP--WSPP Inc.
    Xcel--Xcel Energy Services, Inc., on behalf of Northern States
Power Company; Northern States Power Company; Wisconsin, Public
Service Company of Colorado; and Southwestern Public Service
Company.

United States of America Federal Energy Regulatory Commission

Wholesale Competition in Regions With Organized Electric Markets--
Docket Nos. RM07-19-000 AD07-7-000

Issued February 22, 2008.
KELLY, Commissioner, concurring in part and dissenting in part:
    I support many of the efforts enumerated in the Notice of
Proposed Rulemaking (NOPR) which requests comment on proposals to
improve the operation of wholesale electric markets. I believe that
it is extremely important that we ensure that wholesale markets are
competitive thereby allowing the Commission to fulfill our statutory
mandate to ensure adequate and reliable non-discriminatory service
at just and reasonable rates. Unfortunately, I am concerned
regarding the potential impact of several of the proposals related
to demand response, market monitoring, and promoting regional
transmission organization (RTO)/independent system operator (ISO)
responsiveness.
    I continue to be troubled by the NOPR's proposal in the Market
Rules Governing Price Formation During Periods of Operating Reserve
Shortage section. This section would attempt to stimulate demand
response by allowing RTOs/ISOs to implement scarcity pricing by
modifying market power mitigation rules in organized markets, such
as raising energy supply offer caps and demand bid caps. I
appreciate the efforts made in the NOPR to address market power
associated with scarcity pricing and to ensure that there is an
adequate record regarding any scarcity pricing proposal, including
soliciting the views of each RTO/ISO market monitor on any proposed
reform in this area. However, these positive changes in the NOPR
proposal have not alleviated my concerns regarding the very real
impacts on customers associated with raising energy supply offer
caps and demand bid caps in emergency situations.
    I believe that absent appropriate resource adequacy requirements
and the necessary demand response infrastructure to give consumers
the ability to respond to higher prices, it is not responsible to
allow energy supply offer caps and demand bid caps to rise without
regard to the impacts on consumers. I do not per se oppose scarcity
pricing. However, I believe that there is a crucial timing issue
that we must consider regarding any scarcity pricing proposal. Prior
to implementing scarcity pricing in any market, we must have
resources in place to meet demand. One essential way to accomplish
this goal is through resource adequacy requirements. If a market is
resource adequate, then there will be fewer emergency situations
and, when those emergencies do occur, having demand response in
place will help reduce prices in times of scarcity. Therefore,
resource adequacy requirements and the ability of demand response to
participate in a market go hand in hand with protecting consumers
from market power and thereby making scarcity pricing proposals just
and reasonable.
    Some may look at this as a chicken and egg debate where if we
allow energy supply offer caps and demand bid caps to increase
without restraint this will raise prices thereby encouraging
additional generation and demand response to enter the market. On
the other hand, what happens in the meantime to consumers as we
allow prices to rise without restraint and we are still waiting for
these theoretical incentives to building adequate generation and
demand response infrastructure to kick in? We must never lose sight
of the interests of consumers as we engage in this kind of
philosophical debate because they will be the ones who will lose out
if we miscalculate. The necessary generation and demand response
infrastructure must be in place prior to allowing energy supply
offer caps and demand bid caps to rise or be eliminated.
Unfortunately, this is not the case. As Commission staff noted in
the 2006 FERC Staff Demand Response Assessment, advanced metering
currently has low market penetration of less than six percent in the
United States.\293\ This means that consumers do not have the tools
they need in order to make choices regarding rising prices and
respond accordingly.
---------------------------------------------------------------------------

    \293\ Assessment of Demand Response and Advanced Metering: Staff
Report, Docket No. AD06-2-000, at 26 (2006) (2006 FERC Staff Demand
Response Assessment).
---------------------------------------------------------------------------

    On the issue of market monitoring, I disagree with the NOPR's
proposal to remove market monitors from tariff administration,
particularly market power mitigation. I believe that market
monitoring units (MMUs) should continue to perform mitigation. The
NOPR states that the issue of removing MMUs from mitigation ``proved
to be the most contentious one in the entire market monitoring
section.'' \294\ This is for good reason. As Portland Cement noted
in its comments, ``The MMU's are better positioned to make
determinations regarding the exercise of market power than are the
RTO/ISO staff members who frequently have long standing close
personal relationships with the very market participants whose
actions at times need to be mitigated.'' \295\ Further, I agree with
Portland Cement's statement that having RTO/ISO staff mitigate
creates a much greater conflict of interest than any incidental

conflict created by having the internal MMU both mitigate and report
on the functioning of the markets.\296\ The New York Independent
System Operator (NYISO) also agrees that the concerns expressed in
support of removing the MMU from mitigation are misplaced.\297\
NYISO further stated that ``[t]here is no reason to fear that a
market monitor would hesitate to report market power problems or
potential market abuses just because it was involved in implementing
mitigation measures in that market.'' \298\ BP Energy asserts that
``shifting the mitigation responsibility to RTO staff gives rise to
a much larger conflict of interest than exists with having
mitigation responsibility lie with the independent MMU
exclusively.'' \299\ Therefore, I disagree with the NOPR's proposal
to remove MMUs from mitigation.
---------------------------------------------------------------------------

    \294\ Wholesale Competition in Regions with Organized Electric
Markets, Notice of Proposed Rulemaking, 122 FERC ] 61,617, at P 202
(2008).
    \295\ Portland Cement Association Aug. 16, 2007 Comments, Docket
Nos. AD07-7, RM07-19, at 19.
    \296\ Id.
    \297\ NYISO Sept. 14, 2007 Comments, Docket Nos. AD07-7, RM07-
19, at 23.
    \298\ Id. at 24 (citation omitted).
    \299\ BP Energy Company Sept. 14, 2007 Comments, Docket Nos.
AD07-7, RM07-19, at 31.
---------------------------------------------------------------------------

    Additionally, I would have strengthened the market monitoring
section. For example, the NOPR proposes to retain existing
provisions regarding the confidentiality of the progress and results
of the Commission's own investigations. I believe that, subject to
appropriate confidentiality limitations, the Commission should
provide MMUs with information on referrals that the MMU provides to
the Commission. I would also have supported requiring RTOs/ISOs to
file tariff provisions to allow them to take enforcement action with
respect to objectively identifiable behavior that does not subject
the seller to sanctions or consequence other than those expressly
approved by the Commission and set forth in the tariff and with the
right of appeal, consistent with the Policy Statement on Market
Monitoring Units.\300\
---------------------------------------------------------------------------

    \300\ Policy Statement on Market Monitoring Units, 111 FERC ]
61,267, at P 5 (2005) (citation omitted).
---------------------------------------------------------------------------

    Further, I disagree with the NOPR's proposal to promote
responsiveness of RTOs/ISOs by allowing them to adopt hybrid boards
with stakeholder members. Providing for stakeholder representatives
on an RTO/ISO board is inconsistent with an independent governing
structure. The Commission has already spoken clearly on the
importance of RTOs/ISOs being independent of market participants.
Having an independent board is the cornerstone of RTO/ISO policy.
Order Nos. 888 \301\ and 2000 \302\ require that an RTO/ISO be
independent from market participants in order to provide regional
transmission and energy market services on a non-discriminatory
basis. If an RTO or ISO adopted a hybrid board, I do not believe
they could be categorized as independent. Additionally, I believe
that an RTO or ISO with a hybrid board jeopardizes the ability of
the Commission to apply the independent entity variation standard
found in Order No. 2003 when considering modifications to such an
RTO or ISO's pro forma Large Generator Interconnection Procedures
(LGIP) and Large Generator Interconnection Agreement (LGIA).\303\
---------------------------------------------------------------------------

    \301\ Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery
of Stranded Costs by Public Utilities and Transmitting Utilities,
Order No. 888, FERC Stats. & Regs. ] 31,036 (1996), order on reh'g,
Order No. 888-A, FERC Stats. & Regs. ] 31,048, order on reh'g, Order
No. 888-B, 81 FERC ] 61,248 (1997), order on reh'g, Order No. 888-C,
82 FERC ] 61,046 (1998), aff'd in relevant part sub nom.
Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (DC
Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
    \302\ Regional Transmission Organizations, Order No. 2000, FERC
Stats. & Regs. ] 31,089 (1999), order on reh'g, Order No. 2000-A,
FERC Stats. & Regs. ] 31,092 (2000), aff'd sub nom. Pub. Util. Dist.
No. 1 of Snohomish County, Washington v. FERC, 272 F.3d 607 (DC Cir.
2001).
    \303\ Standardization of Generator Interconnection Agreements
and Procedures, Order No. 2003, FERC Stats. & Regs. ] 31,146, at P
26 (2003), order on reh'g, Order No. 2003-A, FERC Stats. & Regs. ]
31,160, order on reh'g, Order No. 2003-B, FERC Stats. & Regs. ]
31,171 (2004), order on reh'g, Order No. 2003-C, FERC Stats. & Regs.
] 31,190 (2005), aff'd sub nom. Nat'l Ass'n of Regulatory Util.
Comm'rs v. FERC, 475 F.3d 1277 (DC Cir. 2007).
---------------------------------------------------------------------------

    I also fear that a board with independent and non-independent
members will suffer from a divisive atmosphere with suspicion as to
whether non-independent board members were acting in the best
interests of the RTO/ISO and its customers or in the best interest
of the particular market participant represented by that non-
independent board member. In contrast, I believe that the NOPR's
proposal to encourage RTOs and ISOs to establish a stakeholder
advisory committee would meet the NOPR's goal of improving RTO/ISO
responsiveness without jeopardizing the fundamental independence of
RTOs/ISOs. I also believe consideration should be given to the RTO/
ISO mission statement as a tool to respond to any continuing
stakeholder need for more RTO/ISO accountability.
    Finally, I support the long-term power contracting in organized
markets section of the NOPR. I agree with the NOPR's suggestion that
RTOs/ISOs conduct forums on long-term contracts to gather
information and facilitate the exchange of ideas, similar to the one
recently held by PJM. I believe that such forums will allow for an
exchange of ideas on long-term contracting concerns and potentially
foster solutions to these issues. I also agree that Commission staff
should perform an analysis of the level of long-term contracting in
organized market regions.
    Accordingly, for the reasons stated above, I concur in part and
dissent in part on this NOPR.

Suedeen G. Kelly.

United States of America Federal Energy Regulatory Commission

Wholesale Competition in Regions With Organized Electric Markets--
Docket Nos. RM07-19-000, AD07-7-000

Issued February 22, 2008.
WELLINGHOFF, Commissioner, concurring:

    As the Commission states in this Notice of Proposed Rulemaking
(NOPR), from the commencement of our first technical conference in
this proceeding one year ago, our goal has been to identify specific
reforms that can be made to optimize the efficiency of organized
wholesale electric markets for the benefit of customers and,
ultimately, the consumers who pay for electricity services. This
NOPR marks an important step toward that goal, and I am pleased to
support its issuance.
    I would like to draw attention to a few areas of this NOPR, on
which I particularly encourage interested persons to submit
comments.
    In this NOPR, the Commission highlights the importance of demand
response to the organized markets. The Commission states that demand
response helps to reduce prices in competitive wholesale markets in
several ways, such as by reducing generator market power and
flattening an area's load profile. The Commission also recognizes
that the need for, and the focus on, demand response will continue
to increase.
    The Commission makes several notable proposals in this NOPR
related to demand response. One issue on which I encourage comments
is the Commission's proposal to require each RTO and ISO to accept
bids from demand response resources, on a basis comparable to any
other resources, for ancillary services that are acquired in a
competitive bidding process. The Commission states that this policy
would increase the competitiveness of ancillary services markets,
help reduce the price of ancillary services, and improve the
reliability of the grid. I am interested in hearing from interested
parties whether our proposals in this area are adequate to achieve
those goals.
    The Commission also states that we intend to direct our staff to
convene a technical conference shortly after we receive comments on
this NOPR to consider critical issues related to demand response,
such as appropriate compensation for demand response and potential
solutions to remaining barriers to comparable treatment of demand
response. We also propose to require each RTO and ISO to submit a
study on these critical issues within six months of the issuance of
a Final Rule in this proceeding. Those studies would include
proposed solutions along with a timeline for implementation. I
encourage interested parties to provide comments on this approach
and to identify particular issues or areas that should be addressed
in these RTO and ISO studies.
    In addition, I strongly encourage interested parties to comment
on the Commission's proposal in this NOPR concerning market rules
that govern price formation during periods of operating reserve
shortage. It is important to note that these are infrequent periods
when more resources, both generation and demand resources, are
needed to maintain reliable electric service to consumers. I
appreciate the extensive comments that we received on this issue in
response to the ANOPR. I believe that this proposal in the NOPR is
an improvement in several respects over the discussion in the ANOPR.
Most notably, the Commission proposes to adopt requirements to
ensure that proposals for pricing during periods of operating
reserve shortage are designed to protect consumers against the
exercise of market power and are supported by an adequate factual
record. More specifically, we propose that a primary criterion for

approving such pricing proposals would be an adequate record
demonstrating that provisions exist for mitigating market power and
deterring gaming behavior, including, but not limited to, use of
demand resources to discipline bidding behavior to competitive
levels during periods of operating reserve shortage. I am
particularly interested in receiving comments as to whether this and
the other criteria proposed in this NOPR are appropriate, how the
Commission should apply these criteria if we adopt them in a Final
Rule, and whether there are additional criteria that we should
consider in evaluating an RTO's or ISO's proposal for pricing during
a period of operating reserve shortage.
    Finally, I would like to note that the Commission in this NOPR
is directing each RTO or ISO to provide a forum for affected
consumers to voice specific concerns (and to propose regional
solutions) about market designs in its particular region, including
concerns as to the value to the market of significant changes to the
market rules. We are also directing our staff to convene a technical
conference on two proposals that were submitted in comments in this
proceeding. Through these and other steps taken in this NOPR, it is
my intention for the Commission to demonstrate how seriously we take
our statement that the proposals in this NOPR do not represent our
final effort to enhance the efficient functioning of competitive
organized markets for the benefit of consumers.

Jon Wellinghoff,
Commissioner.
[FR Doc. E8-3984 Filed 3-6-08; 8:45 am]

BILLING CODE 6717-01-P