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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

find any significant environmental operating constraints for plants outside of the L.A. basin.

We do know that plant operations in the Los Angeles area were significantly affected by air emissions. The South Coast Air Quality Management District operates a market in emissions, and the cost of these emissions would affect dispatch decisions. However, that is only one of the 36 such districts in California and the only district where such auctions take place.

Clearly, given the significant deviations from traditional dispatch, forced outages or environmental constraints should have shown up either in the press or in the industry literature. With the exception of the Los Angeles area, that was not the case.

Comparable generating units outside of California do not show this behavior. We have conducted a comparable study on thermal generation outside of California. Although plant operations vary slightly from the predictions of the economic dispatch, the deviations average out to the 5 percent range.

The bottom line is straightforward-the California market was characterized by large, enduring deviations from traditional utility practice. Generators did not generate. Peakers did not peak. Emergencies appeared to lack solid justification. All of the evidence is consistent with a major, sustained exercise of market power.

Secrecy at the ISO

In Section 20.3 of its tariff provisions, and in the "Information Availability Policy of October 22, 1998," the California Independent System Operator has adopted a fairly stringent secrecy policy. Simply stated, the ISO does not distribute individual bid or operating data.

Supplying Data. In the ISO's letter withdrawing from participation in the private "EHV Database" operated by the Western Systems Coordinating Council (WSCC), the ISO stated that it was willing to provide generation and line loading hourly data, but only if the WSCC would sign an "ISO Confidentiality and Use Agreement."

A Curious Reluctance. This policy appears curious, as EHV thermal plant data already is publicly available (though on a delayed basis) from the U.S. Environmental Protection Agency, under the EPA's Acid Rain program. This reluctance appears even stranger given the fact that the ISO previously had been distributing real-time operating and line loading data directly to the California market participants through the WSCC EHV real-time website.

Suspicions Raised. The erratic implementation of the ISO's secrecy policy (especially in its unwillingness to provide some of the same data to the California Public Utilities Commission*) raises the suspicion that the ISO has been attempting to avoid regulatory and operating review and to protect itself from criticism of its reliability calculations and operating decisions.

Ignored Requests. Interestingly, some requests submitted to the ISO by our firm for non-commercially sensitive information have been ignored for months, in spite of the explicit rule (5.2 of the ISO Information Availability Policy) that sets a 10-day response time and frequent telephone calls and personal requests. -R.M.

Solving the Mystery: Means, Motive, Opportunity

The events this summer in the California market have all of the ingredients of a classical murder mystery: means, motive, and opportunity. While many of the questions will await detailed discovery for final answers, the implications are quite clear.

The Means.