Local Market Power Mitigation

In the IESO-administered market circumstances may arise where, because of transmission constraints, some power producers within a specific region may be able to take advantage of the market rules. The market rules provide the IESO with the tools to mitigate the effect of excessive payments which may be the result of local market power or related conditions.

The IESO provides a congestion management payment to compensate generators, traders and dispatchable loads for excess costs or lost profits created by congestion on the transmission grid. For example, if a local area requires more power than the system can bring into the area, that excess demand has to be met by a local producer. If the local producer was offering to produce power at a rate higher than another generator located further away, it will be compensated at the higher price it offered. Similarly, congestion can lead to a lower-cost generator being compensated for producing less power than it had originally offered.

Appendix 7.6 of the Market Rules allows for a review of congestion management payments in situations where there may be local market power, or in related circumstances where constrained off payments have been persistent and significant in an area of the province which often exhibits congestion (a designated constrained off watch zone).

There are three tests to determine if local market power existed. Using price factors developed by the Market Surveillance Panel and reference prices which often reflect historical pricing, a price screening mechanism is applied to test if congestion management payments fall within reasonable parameters. In addition there is a sufficient competition test and a test confirming that the congestion payment was the result of a transmission or security limit (i.e. transmission congestion).

These tests are not applied to facilities in a constrained off watch zone when constrained off congestion payments have been persistent and significant. However a price test is applied which reflects various measures indicative of costs, lost profits or lost opportunities.

If congestion payments are based on prices beyond the allowed price limits the IESO may notify the market participant who has the option of responding by completing the Response to Notice of Possible CMSC Recalculation for Local Market Power and may request an alternative price be applied for the recalculation. The IESO will then determine whether settlement recalculations will be required or it may decide to pursue an inquiry into the matter. Market participants may also request an inquiry by completing a Request for Local Market Power Inquiry.

If an inquiry is held, the market participant will be required to complete the Submission of Information Requested for a Local Market Power Inquiry form. Representatives from both the IESO and the market participant will meet to review all relevant information so that the IESO can make a final determination as to whether congestion payments should be adjusted.

Market Manual 2.12: Treatment of Local Market Power provides detailed information about the process for reviewing and adjusting congestion payments.

The IESO does not need to establish the existence of local market power (with the three above-mentioned screens) if the facility is in a designated constrained off watch zone and constrained off congestion payments have been persistent and significant (section 1.2.1C of Appendix 7.6). To this end the IESO regularly reviews conditions in the province to determine what areas should be designated as watch zones.

Congestion payments are most often the result of transmission congestion or losses which are reflected in nodal prices. Comparing the nodal price in representative areas of the province with the uniform market price for energy is therefore an indication of the tendency for facilities to be constrained off. If the difference in these two prices is material (for example, more than $20 / MWh) for a significant portion of the time (over various periods up to 180 days), the IESO will designate the area as a constrained off watch zone.

The current assessment of designated constrained off watch zones is described in the most recent Notice to Participants re Watch Zones.

Market Manual 2.12 Appendix F describes this process more fully.  See Table: Representative Nodes for Assessing Constrained Off Watch Zones for current zones and representative nodes.

• Northwest area, only for facilities injecting energy (imports and generation).

The sufficient competition screen (section 1.3.9 of Appendix 7.6), one of the tests to determine if local market power existed, is more fully described in section C.1.3 of Market Manual 2.12. The market manual explains how the IESO would consider there to be insufficient competition if constraining on or off the facilities of one participant were deemed critical to meeting a transmission or security limit. Where this is not obvious, the IESO would perform a formal analysis, after which sufficient competition would be concluded only if:

1. there are at least three other competitors with facilities effectively able to provide a portion of the required service; and
2. the total capacity available from competitors is greater than the constrained on (or off) requirement (i.e. the resources of the market participant being reviewed were not pivotal).

With this approach, boundary entities in southern Ontario typically would not be seen as pivotal for most transmission or security constraints, since in pre-dispatch they are likely competing with other boundary entities in the same or at other intertie zones, and with other facilities within Ontario.

AAn intertie zone may have very few participants competing to export energy out of Ontario. According to section 1.3.3.4 of Appendix 7.6, if certain criteria are met (see Appendix E of Market Manual 2.12) the IESO may designate this intertie as an uncontested export intertie. Most commonly, such designation is expected to occur if over the previous 90 days, a single participant accounted for 90% of the exports at the intertie. When an intertie is so designated, screening of any exports under the local market power review would ignore the historical reference price which may be calculated at this intertie, and would then use only the interval market price for energy. The current list of designated interties is described in the most recent Notice to Participants regarding Uncontested Export Interties.

Even for designated uncontested export interties, the sufficient competition screen is still applied. Thus if it happens that there are several competitors able to be dispatched to satisfy the transmission or security limit, and if the exporting facility was not pivotal for the particular event, the facility would not be reviewed further under the local market power process as the criteria for sufficient competition has been met.

Current Uncontested Export Interties

• Manitoba (MBSI using the K21W / K22W transmission lines)
• Quebec at Kipiwa (PQHZ using the H4Z transmission line)
• Quebec at Maclaren (PQDA using the D5A transmission line)