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Three things electricity market operators should do to improve performance

Given the critical importance of electricity market operators (MOs), most modern electricity markets now require MOs to undertake a periodic compliance audit. The insights from these audits provide a rich source of information as to what can go wrong, what the underlying causes of failure are, and most importantly, what the key to increased compliance might be.  

Our experience in auditing the compliance of electricity market operators across North America and the Asia-Pacific region shows that there are typically three main underlying causes of non-compliance, all of which need to be addressed if performance is to be assured.

Specifically, high levels of compliance require MOs to:

Focus on market design

It is critical that the market design facilitates effective implementation. In practice this means a continual focus on refining and updating the rules that govern market operation to ensure they are both theoretically well-founded and able to be implemented in practice. Too often we find that market rules are specified in a way that is problematic or cumbersome to implement, encouraging intentional non-compliance in the form of “work arounds”. The Rules and MO behaviour must be brought into line if confidence in the market is to be maintained.

Ensure proper governance of business processes

The most common underlying cause of repeated or chronic non-compliance is a lack of proper governance and oversight of key business processes. Typically, operational practices evolve over time without regard to the written procedures. The net effect is that the written procedures cease to have any practical effect as governing documents leading to operational practices becoming ad hoc and of varying quality. For compliance to be assured, it is important that each business process has an owner accountable for proactively updating all internal procedures.

Actively manage compliance risk throughout the year

In practice, the biggest risk area tends to come in the form of software updates and new releases. To that end, it is essential that all changes and updates to market software should be independently tested and certified prior to their use within the market. This should extend to all tools that are used to determine input parameters. Our experience proves that, in practice, it is the use of un-audited, ad hoc spread-sheets to compute input parameters for the bespoke market software that pose the biggest risk.

To find out more about how PA can help assure compliance in electricity market operations, contact us now.

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