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Price Spike Tsunami: How Market Power Soaked California

Last year saw no shift in fundamentals. Then why was the ISO so willing to be deceived?
Fortnightly Magazine - January 1 2001

highest-cost, currently operating thermal unit. And this bulk power market has remained stable ever since, throughout droughts, earthquakes, and wide variations in the balance between resource and load.

Consider the following table. It shows prices at the Mid-Columbia hub since 1980. The following table shows average Columbia River inflows, natural gas prices, and Mid-C hub prices....

The significance of this table is that summer peaks in 2000 were not surprisingly high. Summer peaks were lower than the previous two years. Average energy use was higher than in 1999, but approximately equivalent to 1998.

Of course, we will not have precise data on hourly loads for the entire Western Systems Coordinating Council (WSCC) until summer 2001. However, as of late November, data was available for hourly loads for the ISO through the summer, as well as monthly energy loads for the entire WSCC through July. And retail load data was available by state for the United States and by province for Canada through July 2000.

According to this data, actual WSCC loads were higher during the summer of 1998 and winter 1999/2000 than the loads through July 2000. Regional loads in May were lower than loads during a number of previous months, and roughly equivalent to the loads in May 1999.

In other words, in spite of many, many authoritative reports to the contrary, California ISO peak in summer 2000 was significantly lower than the peak in 1999. The 1998 California ISO peak also was higher than the peak load for summer 2000. 1

But what about hydroelectric generation? Was 2000 a typical water year?

The major hydroelectric resource on the West Coast is the Columbia River. The Columbia is unusual among major hydroelectric resources, both for the uncertainty of its annual flows and the highly restricted amount of storage available. Columbia inflows were only average in 2000, although May hydroelectric generation was 120 percent of the May average from 1986 through 1999. In fact, all summer generation was slightly above the average for the past 14 years.

There has been substantial publicity concerning the "low" flows on the Columbia, but the actual data is very different. Columbia flows peak in the late spring as the snow melts along the Canadian Rockies. The pattern of flows in 2000 was unusual-June was lower than expected-but overall total hydroelectric generation was better than average.

Data on hydroelectric generation is currently available through August for the Columbia River and Canada. California hydroelectric generation has been simulated statistically to provide a forecast for total August generation.

Overall, the current year is not unusual in terms of loads, hydroelectric generation, or the load/resource balance. The WSCC's assumption of "business as usual" is very reasonable in terms of the summer's operations. ISO peak loads were lower than in the previous two years, overall loads increased, and hydroelectric generation was a bit above average. Simply put, summer 2000 saw no major shift in market fundamentals.

Reliability to Blame?

From the beginning of the summer, some have doubted the accuracy of the ISO's reliability calculations. One way to check the ISO's