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California's Scheduling Coordinator: Market-Maker with Advantage

Fortnightly Magazine - January 15 1998

to expected congestion. The SC obtains congestion information from the ISO, examines trading options and adjusts generation and loads, easing trades between its participants or with other SCs. The SC then submits its revised generation and load schedule to the ISO. With these revised schedules, the ISO may determine that SCs have made generation and load adjustments so that congestion no longer exists.

If congestion remains, the ISO can adjust specific generation and load based on voluntarily submitted adjustment bids from SCs. The ISO then sends redispatch instructions to the SC, which the SC must carry out or face economic penalty based on the next incremental bid to meet the ISO's needs. The ISO, however, cannot adjust individual schedules of generators or consumers. %n4%n Only the SC has this authority. The ISO can act autonomously to change generation and load only in extreme emergencies, such as an impending outage.

More Flexibility, Broader Scope

The differences between California's SCs and PX are striking. Though "comparability" serves as the FERC's golden rule - and should have governed the design of the PX and SCs - in California it has taken a back seat.

As market-maker, the SC can negotiate any role it deems appropriate to serve its clients and market participants and can strike any deal that is commercially acceptable between consenting parties. Let the buyer beware; the SC can do any of the following and more:

1. Keep supply portfolio costs "blind" to clients, allowing no price transparency.

2. Ignore the client's specific generation and load costs, allowing SCs to cross-subsidize between clients at will.

3. Discriminate within its portfolio of client-participants (according to inverse price elasticity), such as by differential pricing for customers or groups.

4. Attempt to set prices through strategic or collusive games, using its portfolio of clients' resources and loads.

Smart buyers of SC services may integrate specific contract terms to avoid these pitfalls. Preferred customers with sufficient buying power are expected to benefit most and face less risk by negotiating customized contracts with SCs.

By contrast, the PX is disadvantaged.

The PX is a market maker that accepts day-ahead and hour-ahead energy bids (supply and demand) and loads. The PX must behave in a nondiscriminatory manner with full price transparency. It can only accept generation bids, loads and demand bids. It cannot take a position in the market. The PX will match the lowest incremental generation bid with the highest incremental demand bid, producing uniform market clearing prices (MCPs) for each hour. It then must publish these MCPs, notify its participants of auction results and submit the resulting schedule of generation and load to the ISO.

Meanwhile, an SC can price-discriminate by matching the next highest willingness to pay for demand with a slightly lower generation price. %n5%n Price discrimination merely results in some prices that exceed a uniform MCP and some prices that fall below a uniform MCP. Some SCs even index their prices to the MCP or PX. If PX prices are consistently higher, then SCs can virtually build-in profit margins. The PX, on the other