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Making Markets Work: How ISO Rules Still Cause Problems

How obscured spot prices, unhedgeable basis differentials, unreliable and financially insecure clearing practices inhibit market liquidity.
Fortnightly Magazine - January 1 2002

restructured electricity markets should be on the creation of a market structure that functions to seek equilibrium. This will necessarily involve some trade-offs against engineering accuracy.

  1. In the Federal Energy Regulatory Commission Strategic Plan 2001-2005, Making Markets Work; Sept. 25, 2001 Revision B, a key challenge identified is to foster nationwide competitive energy markets as a substitute for traditional regulation.
  2. To the extent that locational marginal pricing results in significant and unpredictable basis differentials, as demonstrated by PJM Eastern hub, forward markets are illiquid.
  3. See http://www.botcc.com for description of clearing practices at BOTCC on behalf of the CBOT and as linked to and adopted by worldwide clearing corporations.
  4. Market power is the ability of an entity to profitably raise or lower market price levels for a sustained period of time.
  5. For example, CalPX block forward markets at SP15 and NP15 functioned reasonably well and continued to gain depth through the summer of 2000 despite locational variations and some uplifts. However, forward trading ceased in November of 2000 coincident with FERC's proposed order to, among other things, institute $150 bid caps.

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