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Revisiting California

Market power after two years.
Fortnightly Magazine - April 1 2002

whom the staff actually planned to sell access to its database. We were surprised that after 20 years in the industry, and a client list that included a dozen WSCC members, that we were told that we were not an appropriate user of the data. Seattle City Light then attempted to sign up and was told that it could sign up, but it could not show the data to its lawyers and consultants. 10 After nearly a month of wrangling-and an article in the Wall Street Journal-a suitably complex arrangement was finally arrived at. 11

The data from the WSCC (supplied to it from the ISO) did not support the hypothesis that California plants were out of service. Instead, the data showed that the plants tended to be operating during the ISO system emergencies, but were not being fully dispatched-even during the hours when actual emergency operating conditions were in place.

We were very surprised to learn that overall thermal operations in the California ISO's control area were running at levels far below the levels of comparable plants elsewhere in the WSCC. Comparing the dispatch rates with price data, our preliminary conclusion was that the California PX and ISO had suffered a one-time supply curve shift of 8,000 megawatts leftwards towards the origin. In simpler terms, the crisis looked like 8,000 megawatts had simply been removed from service. Eighteen months later, this is still our conclusion.

Enough time has passed that we now know the WSCC was not facing a capacity shortage at the time. On an annual basis, the WSCC publishes a 10-year forecast of resource sufficiency. This forecast is usually named the "10-Year Coordinated Plan Summary." One important part of the report describes the ratio between resources and loads for the previous year. Figure 1 shows this data from the WSCC reports from 1980 to 2001. 12

In describing this chart to the House Energy and Commerce Committee, I used the metaphor of creating a happy household by ensuring that the ratio of snacks to teenagers always stayed high. In the utility industry, this ratio is called the reserve margin. A reserve margin of 15 percent means that the area has 15 percent more resources than requirements. This level-15 percent-is generally regarded as an acceptable margin, since one power plant in six would have to fail for an interruption in service to take place.

As the chart shows, the WSCC has fallen near this level frequently in the past decade. From 1991 through 1998, reserve margins routinely fell below 20 percent during the summer. In each case, actual interruptions of service were unnecessary, since we always had enough resources to meet load.

The situation in 2000 was far better than the situation we faced from 1991 through 1998. In 2000 we were able to get through the summer with a reserve margin above 20 percent. 13

Pundits have identified the real problem in 2000 and 2001 as the serious drought that afflicted the Pacific Northwest during this period. As it turns out, this argument is wrong theoretically (reserve margins are