FERC conditionally accepted the Midwest ISO's proposal to implement a day-ahead and real time ancillary services market (ASM) including a scarcity pricing proposal, the commission said yesterday.

          "This is a significant step to improve power markets in the Midwest," said Chairman Joseph Kelliher.  "FERC recently proposed changes to strengthen competition in organized electric markets, including improvements in demand response."

          The ASM will help DR be more price competitive and improve reliability and efficiency in the Midwest, he added.

          The proposed tariff will "yield substantial reliability and efficiency benefits," FERC said in its approval order.

          MISO's proposal calls for scarcity pricing through the use of demand curves in shortage conditions and more participation by demand side resources.

          The ISO will figure out operation reserve requirements and buy operating reserves from all qualified resources -- instead of the current system of local management and procurement of reserves by the 24 balancing authorities.

          NERC's balancing authority responsibility will shift to the ISO so the latter can do the job for its entire footprint.

          MISO's ASM proposal incorporates some of the best features from ancillary markets in other transmission organizations including PJM, the New York ISO, ISO New England and ERCOT, said FERC.

          The plan includes a package of market mitigation measures meant to keep ASM rates just and reasonable as MISO moves from cost-based rates to market-based rates.

          FERC adopted the same conduct and impact mitigation tests now used in MISO's energy markets and that have worked well there and in other markets such as the New York ISO.

          The market monitor will watch and audit the new market for signs of physical and economic withholding.