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Revisiting California

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

market rules, and accelerated permits. The comments of two of the most important districts-L.A. and San Diego-on Feb. 6, 2001, used very blunt language to describe the value of the generators' claims. 15 A careful review of the environmental argument indicates that local air quality districts aggressively reacted to the crisis-far more aggressively than the generators.

By the planning methods we have used for the past century, the WSCC was not facing a capacity shortage in 2000 or 2001. While such methods have their shortcomings, a consistent review of the data indicates that if the emergencies of 2000 had been caused by a true shortage, our situation in 1994 would have been considerably worse. The major difference between the relatively stable conditions we experienced in 1994 and the emergencies in 2000 was in large part the difference in the operations of traditional utilities and the structure of the California market. In 1994, the generating plants belonged to the utilities. In 2000, the generating plants were dispatched according to the complex incentives hidden in the rules of AB1890.

Why Were Prices So High?

A simpler explanation is available, though. Starting in 2000, the WSCC had established a database showing the hourly plant operations of many of the plants on the West Coast. The California ISO provided plant data to the WSCC which, in turn, provided it to any interested WSCC member. While secrecy of operating data is a cornerstone of the California market design, the practice of secrecy at the ISO was unusual. The ISO provided this secret data in contravention of its FERC-filed tariff throughout the summer and fall of 2000. 16 Any market participant equipped with this data would be able to easily adjust their operations to accentuate the California ISO's problems during an hour when demand was high. Curiously, Portland General Electric, Enron's subsidiary, did not contribute data to the database. Enron had access to the data of others, but did not welcome access to its own plant operations.

The California ISO has provided numerous charts that show that as its system approached peak, supplies offered to the California PX would begin to drop off. The resulting deficit would become an operating problem at the ISO. Once emergency conditions were declared, prices would skyrocket and supplies would reappear.

Documenting this was not easy. During the first part of the crisis, the generators' representative was the chairman of the ISO board. ISO market surveillance was rudimentary and timid. Generators' lobbying at the WSCC made access of the operating data to non-market participants slow and controversial.

Ironically, the hourly data is public outside of California-even today-as part of the EPA's emissions database. Unfortunately for consumers and policymakers in California, access to this data is usually delayed from three to five months.

Figure 3 shows the monthly operations of the units owned by Duke, Dynegy, Mirant, Reliant, and AES over this period. While plant operations in the rest of WSCC reached 100 percent, plant operations for the groups who have primarily profited from the crisis averaged 50.3 percent from May 2000 to June