About 30 states have begun (em
either through the legislature, the utility commission, informal working groups, or some combination of these (em to consider issues such as retail wheeling,...
hand, cannot produce prices that are competitive with SCs.
As things stand, an SC can interact and negotiate with its own generators and client loads and with other SCs as well. Even cartel behavior is not prohibited under the ISO Tariff or its protocols. SCs need not disclose any information to client-participants but the resulting schedules. In short, SCs can discriminate at will in any manner within the law.
The PX, which should be able to offer a competitive MCP, remains burdened with protocols limiting its participants and making it an inferior market. California's smaller consumers defined the problems with market protocols, %n6%n some of which are summarized here:
1. PX participants must bid earlier and reveal prices earlier than other SCs. Hence, after the PX has "tied the hands" of its participants, other SCs can submit initial and final, preferred schedules.
2. In the day-ahead market, SC participants can trade to reduce congestion and lower power costs; the PX cannot respond to congestion through bids or trades.
3. Because the PX cannot respond to congestion, generators will shun the PX rather than face an uncertain curtailment to operate.
4. PX participants will trade based on Activity Rules which ensure incentive compatibility (serious binding offers) but SC participants have no such restrictions.
5. The PX cannot take a position in the market (regarding congestion, ancillary services, or transmission contracts) - it is a market maker "without a brain."
And the PX suffers from added burdens. First, it must accept the expensive power from California's investor-owned utilities, while SCs need not. Second, the PX must serve the default customers at each IOU who "choose not to choose." IOUs will not submit demand bids for default loads that do not elect direct access. These customers become pure "price-takers" in the PX, marked by a vertical demand-curve reflecting a presumed willingness to pay an infinite price for electricity. From the experience of England and Wales, we know this situation is a recipe for generators to exercise market power. Third, in comparison to other SCs, the PX effectively requires redundant access costs and transaction costs - though it retains less flexibility than other SCs. %n7%n
In a properly structured environment, a viable PX would create a highly competitive energy market with low transaction costs. This feature would support a more competitive bilateral contracts market and facilitate greater rivalry among all SCs. Hence, the PX would be a transparent substitute for consumers to comparison shop among SCs for better deals. Not surprisingly, SCs have signaled that they don't want a viable competing PX.
Expected Gaming Strategies
Electricity markets in England and Wales revealed many strategic games to increase generation prices and profits, such as generation scheduling and bidding to increase profits and create barriers to market entry. Similar concerns have been raised about gaming in California's markets. %n8%n In sequential and iterative markets similar to those in California, gaming will emerge without uniform pricing or well-designed activity rules. %n9%n
Four simple gaming strategies are briefly explained.
First is gaming by capacity withholding. It has been used with