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News Digest

Electric Reliability
Fortnightly Magazine - June 15 2000
  • Dynegy, and the Western Power Trading Forum argue that the ISO must "cleanse" its tariff of certain "offending provisions" that give it the right to play both "judge and jury" and impose sanctions and penalties on market participants when it uncovers "anomalous market behavior." Even though the ISO is not a "market participant" in the traditional sense, the marketers claim that "the ISO operates and controls virtually the entire Ancillary Services market in California." They add, "The ISO has a vested interest in dispelling any allegation that its own negligence could have been a contributing factor in any market anomaly É the ISO will always be biased towards finding parties to blame."
  • Software Disclosure- Issue 537. In October 1997, the FERC directed the ISO to make its computer algorithm publicly available to all market participants, and various marketers and municipal utilities have renewed that demand, calling for FERC to force the ISO to reveal all components, including the computer program, network database, tuning parameters, and "other heuristics" used by the ISO to operate the algorithm. But the ISO maintains that some software is proprietary and disclosure could violate confidentiality obligations under its contract with its outside software vendor.

Installed Capacity. Citing bidding behavior that looked like price manipulation, ISO New England on May 8 renewed its request to the FERC for authority to terminate its monthly auction market for installed capacity, effective June 1, and for additional guidance on market monitoring and strategies to mitigate market power. The move would leave the ISO with five remaining product markets, each priced on an hourly basis: (1) Energy, (2) 10-Minute Spinning Reserve, (3) 10-Minute Non-Spinning Reserve, (4) Automatic Generation Control, and (5) 30-Minute Operating Reserves.

The ISO also formed a small working group to formulate new models for a capacity reserve market, and said it expected Harvey Reed of Constellation Power Source to chair the group. (Reed also chaired the NEPOOL working group for congestion management and multi-settlement systems.)

The installed capacity requirement forces load-serving entities (LSEs) to maintain ownership or contract rights to capacity to satisfy monthly peak load. The auction allowed bidders to sell the excess or make up any deficiency.In actual bidding, however, the ISO observed anomalies, including an unusual "j-shaped" supply curve, coupled with monthly peaks rising from about $1,000 per megawatt in mid-1999 to as high as $99,999 in mid-winter 1999-2000.

In January, in fact, the ISO found it necessary to reprice one particular bid- which dropped the clearing price from $10,000 per megawatt all the way to zero- after the ISO found that one bid of over 2,000 MW at a price substantially higher than $10,000 had represented over 60 percent of the total non-zero bids for the month.

By contrast, the ISO found that an "active" bilateral market for capacity had emerged in New England, totaling 27,900 MW for March 2000, at contract lengths ranging from one month to a year or longer, which it said exceeded NEPOOL's entire installed capability. But the ISO acknowledged that the bilateral market could represent the "trading and retrading" of the