Comments on the RGGI Market Design 1

(hereafter " Final Report "). ISO-NE is the private, non-profit entity that serves as the regional transmission organization (" RTO ") for New England. ISO-NE operates the New England bulk power system and administers New England's organized wholesale electricity market pursuant to the ISO New England Transmission, Markets and Services Tariff and the Transmission Operating Agreement with the New England Participating Transmission Owners. The New York Independent System Operator, Inc. (" NYISO ") is the not-for-profit corporation responsible for operating New York's bulk electricity grid, providing non-discriminatory access to transmission service and administering wholesale markets for electricity and transmission products in New York. To help in our assessment and understanding of the design issues of this critical market, we asked Professor Peter Cramton of the University of Maryland, a well known and well regarded expert in auction design, to comment on the market design.. In addition to Professor Cramton's widely-cited academic research on auction design, he has applied this research to design high-stake auction markets in many countries and industries, including markets for electricity and emission allowances. Professor Cramton's comments are included as an attachment to this letter. We have studied the RGGI market, including the Model Rule, the Phase 1 Report, and the Final Report. We have also met with Professor Cramton and others to discuss the RGGI market design. We outline our consensus view, which is consistent with the Professor Cramton's comments on the RGGI market design. We agree with many of the recommendations of the Final Report, but believe that some require modification or extension to best achieve the RGGI objectives. We briefly summarize our views here, although we urge the RGGI Board and other policy makers to examine Professor Cramton's paper for a detailed analysis and explanation. Most significantly, we recommend an ascending clock auction for each quarterly auction rather than the sealed bid auction recommended in the Final Report. The ascending clock auction is simple for bidders and has an excellent record of practical success. The ascending clock auction is similar to the recommended uniform-price auction, but it has important advantages. The main advantage is better price discovery. Bidders can learn from the bidding process and condition their bids on this information. In the RGGI context, it is proposed that two products, spot and forward, be auctioned in each quarter. The clock auction would allow the bidders to substitute between these close substitutes in 1