The case for bringing back the Standard Market Design

Image by Couleur – Pixabay

Jon Wellinghoff, former Chairman FERC, said in a podcast that it is time to bring back Standard Market Design which was established by Pat Woods (FERC Chairman) in the early 2000s. It is unclear what Boris Johnson’s nationalization of the electric grid means, but the “Future System Operator” resonates with many energy transformation efforts underway in Europe and here in the United States.

The US grid would be better served if FERC took steps to standardize market design among the six (CAISO MISO SPP, SPP, SPP, NYISO and ISO-NE) regional transmitting organizations it has jurisdiction. ERCOT should also be under FERC jurisdiction. FERC should make it mandatory that all transmission providers become Independent System Operators. We need to move beyond the California energy crisis in 2000.

What is Standard Market Design?

Standard Market Design (SMD), a form of standard market design, was criticized for its association with the California energy crisis caused by Enron in 2000. The SMD has four main components, as this July 2003 paper explains.
1) A standard transmission tarif that would apply to wholesale or retail customers of transmission
2) Transmission owners grant functional control to an independent grid operator of transmission assets
3) Establishing a transparent wholesale cost at the transmission nodes, and enabling financial transmission rights for transmission congestion costs to be hedged
4) Establish a process to meet your long-term resource adequacy requirements.

Looking back over the US in the last 20 years, we see that the six organized markets within FERC jurisdiction perform all of these functions. SMD is a proven method of achieving economic growth. We have evidence to prove it. None of the ISOs at present are perfect.

Aggregation of distributed energie resources requires a standard market layout

To prove that none of the current ISOs are perfect, we can look at the current compliance frameworks proposed by 4 ISOs – CAISO, NYISO, PJM, and ISO-NE. The remaining ISOs – MISO and PJM, will submit their plans later this month.

As the Voltus comments filed in response to ISO-NE’s FERC Order 2222 compliance note, none of the ISOs have fully met the overall objectives of aggregating distributed energy resources on par with other resources on the grid.

Without an SMD FERC must first issue a Notice of Proposed Rulesmaking (NOPR), then a FERC Ordinance. All of this takes time. This is evident in Order 2222 issued in September 2000, after the November 2016 NOPR was issued. An SMD would solve this problem because stakeholders don’t have to comment on each issue at FERC and convince FERC that what works at one ISO should also be allowed at the other ISO. For example, see multi-nodal aggregate.

FERC should solicit stakeholder feedback on the new elements to be added to the SMD in one instance, rather than releasing NOPR Orders on each major issue piecemeal.

What is the Future System Operator?

Boris Johnson’s Future System Operator is driven by the need to reduce carbon emissions and become net-zero. While details are sketchy on what happens with UK’s current grid operators and what is exactly new with a nationalized grid operator, it is worth noting that the British Prime Minister realizes we need a concerted effort to balance the grid with more renewables on the transmission and distribution systems.

If we forget about the debate about natural gases and instead focus on keeping the lights on, then a grid operator will be needed to manage the transmission and distribution system independently. That impartial “open access” is similar to the SMD’s Open Access Transmission Tariff (OATT). Hence, the future system operator concept may not be new compared to Pat Wood’s SMD concept.   

FERC Chairman Glick’s focus on the “grid of the future

Referring to the US regulatory policy area, FERC Chairman Glick was laser-focused upon the grid of future. The Advanced NOPR on transmission plans and generator interconnection, a FERC or on Ambient Adjusted ratings, and a Notice on Inquiry about Dynamic Line Ratings are just a few examples. The Minimum Offer Pricing Rule (MOPR) proceedings at PJM and ISO-NE have also taken up space on this FERC’s agenda.  

Chairman Glick’s term is ending this summer because he was appointed in November 2017. To give clarity to Aggregators, FERC needs to decide soon on the 2222 compliance files. FERC should reinstate the SMD under a future Chairman and mandate participation at these ISOs.

This authority must be granted by the US Congress. If the US Congress backs SMD, FERC has a clear mandate. According to July 2003 paper, some states did not support the 2001 SMD as they felt FERC was inept in managing California’s energy crisis. But those same states have taken steps towards organized markets since the early 2000s – southeast (where Southwest Energy Exchange Market or SEEM is established) and northwest (where Western Energy Imbalance Market EIM is functioning).

The time has come to stop participating in ISOs.

Chairman Glick didn’t want to force transmission owners to participate in the ISOs. The SMD is working after more than two decades of market operation. FERC is able to deal with the difficult resource adequacy issues in Western Interconnection and the absence of an independent monitor in SEEM simultaneously with an SMSM.

FERC would make it easier for transmission providers to participate in the ISOs by mandating their participation with utilities like Duke Energy in the southeast.

Texas must be under Federal jurisdiction

Texas is excluded from an ISO if transmission providers from the Eastern and Western interconnection countries join it. Some believe that ERCOT wouldn’t have been in financial hardship in February 2021, if it was part of the Eastern interconnection. It is important to recall that the 2011 winter caused serious damage to the Texas grid. FERC, NERC and other agencies jointly released a report. The current Chairman of FERC Glick doesn’t want the joint report 2021 FERC/NERC to be forgotten. ERCOT, which is now under FERC control, will improve interconnections with both Eastern and Western grids. This will dramatically increase the likelihood of Texans receiving transmission support in an immediate emergency.     


Pat Wood, FERC Chairman, introduced the Standard Market Design in 2001. This standardized the wholesale market frameworks throughout the US. The SMD should be brought back by FERC 20 years later, with the benefit of grid operations experience and a view to the future. Standardization will benefit both renewables and distributed energy resources as both are predicted to increase their participation in future grid operations.