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California's Scheduling Coordinator: Market-Maker with Advantage

Fortnightly Magazine - January 15 1998

in California's electricity market reform since 1985. The author thanks Charles Stalon for clarifying the capture of monopoly power, Michael Shames for his critique, and Michael Florio for the idea of this article. All errors are the author's responsibility.

SC as Gatekeeper

THE SC is a market-maker extraordinaire, a gatekeeper for all

generation and load that seeks access to the ISO grid. Only

SCs can schedule power on the grid. The PX is also considered an SC, but with restricted capabilities. Only SCs can coordinate many generators and loads in a strategic way, influencing the market.

SCs can also:

•  Negotiate generator and load changes with clients.

•  Negotiate bilateral contracts with or between clients.

•  Aggregate contracts between market participants.

•  Act as an Energy Service Provider.

•  Own, contract for, or broker generation.

•  Bundle generation and load.

•  Act as the sole agent to the ISO.

•  Submit schedules and bids for ancillary services.*

* The SC can provide spinning reserves, non-spinning reserves, reservation capacity and regulation (automatic generation control). This set of services differs from the list of ancillary services defined in FERC Order 888. In California, the ISO separately procures voltage (var) support and black-start capability. The ISO also provides balancing energy in the real-time market at market-clearing prices set by the PX.

1 Order Conditionally Authorizing Limited Operation of an ISO and PX, FERC Dockets ec96-19-001, ec96-19-002, et seq., Oct. 30, 1997. (Hereafter, FERC Conditions.)

2 See, e.g., Comments of TURN/UCAN Regarding 15 August Filings of the California ISO Corporation and PX Corporation, Sept. 2, 1997, FERC Dockets ec96-19-003 and er96-1663-003. TURN/UCAN argue "that the instant proposal will result in a discriminatory market which encourages the abuse of market power by large players and will result in major inefficiencies that create large and deleterious impacts on consumers."

3 See, PJM Interconnection, Docket Nos. oa97-261-000 et al., Nov. 25, 1997, 81 FERC ¶ 61,257 (order conditionally accepting open access transmission tariff, power pool agreements and conditionally authorizing ISO).

4 The most expert SCs will in this way attempt to achieve "perfect price discrimination" along the entire demand curve. See, O. Williamson, Economic Organization: Firms, Markets, and Policy Control, 1986.

5 See, Protest of TURN/UCAN Regarding Phase II Filings of the California ISO Corporation and PX Corporation, June 5, 1997, FERC Dockets ec96-19-003 and er96-1663-003.

6 Although some SCs may choose to connect-up to the PX in order to gain more options to arbitrage.

7 See, Comments of TURN/UCAN Regarding the 15 August 1997 Filings of the California ISO Corporation and PX Corporation, Sept. 2, 1997, FERC Dockets ec96-19-003 and er96-1663-003.

8 R. Wilson, Report to the California Trust for Power Industry Restructuring: Bidding Activity Rules for the Power Exchange, March 14, 1997.

9 Start-up and no-load costs for plants that could come on line also factor into this strategy.

10 California ISO, Market Power and Monitoring Workshop, Nov. 18, 1997, Oakland, Calif.

11 Most all generation must be monitored, which is difficult and expensive, and from this data market coordination or gaming must be "observed," which seems