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Revisiting California

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

2001. Interestingly, plant operations were actually slightly higher for the three months that followed price controls, even though market prices were significantly lower. 17

We have been unable to explain the hourly operations of these five generators even after enormous effort. Frequently, plants went undispatched during system peaks and even during ISO-declared emergencies. Whistleblowers from the plant operations staff have indicated that their directions from management were inexplicable. Operations at plants outside of California have shown none of these problems. In fact, outside of the plants in Figure 4, operations have been as close to 100 percent of capacity as the owners could reach.

Many analysts break the California crisis into two periods. The first-economic withholding-represents the period when generators either did not bid resources into the PX and ISO, or made bids at unrealistic prices. A second period-physical withholding-takes place from November through June. While it is possible that the decision to take 50 percent of California's thermal units down simultaneously for planned outages was simply coincidental, an alternative explanation is also possible. After the ISO stopped providing operating data through the WSCC, generators may have simply switched to communicating their operating levels through planned and forced outage announcements. Regardless of the explanation, operations in the second part of the crisis roughly mirrored operations during the first portion.

From November until the onset of price controls, the five generators reported massive plant outages. The ISO did not reliably solicit or record plant outage data until 2001, so it is difficult to compare the outages in November 2000 to May 2001 with previous years for the same plants. The North American Electric Reliability Council (NERC) accumulates detailed historical data on the performance of similar plants-by size, technology, and fuel. Its data shows vastly lower outage rates on similar equipment. 18

FERC conducted a preliminary investigation into the high rate of outages in February 2001. 19 Although honestly undertaken, this report shows the futility of trying to regulate reliability standards after the fact. FERC's staff simply didn't have the background or access to do a detailed evaluation on a plant by plant basis. Surprisingly, FERC's report made no attempt to compare these units with similar units in the GADS data. 20

Implementation of Price Caps-Correcting "Bad Results"

While predictions of widespread blackouts were common through the spring of 2001, FERC's decision to implement a WSCC-wide price cap appears to have had a significant impact on plant outages, short-term prices, and long-term prices in the late spring. As always, shifts in long term prices are the most interesting, since they are not affected by weather or other operating problems.

The onset of price caps in June led to the larger of the West Coast's two long-term price reductions in 2001.

The success of the price caps can be seen immediately. The presence of a counterweight to California's fragile power markets almost immediately returned long-term prices to the levels we have seen for the past 20 years. As FERC's recent report notes " the average price (both simple and weighted) at which the Western utilities