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sold power in the daily spot market was significantly below the price cap of $92/MWh." 21 This is quite an understatement-by the end of June, prices had fallen to $43/MWh at Palo Verde. ()
While price caps are unlikely to work in a competitive market, the California market was hardly competitive. The incentives under AB1890 rewarded shortages. Once the ISO entered an emergency, it offered prices five to 30 times higher than normal levels for emergency supplies. Once FERC eliminated the ISO's ability to pay such distorted prices, generators in California were rewarded by producing more electricity, rather than less. All of the data indicates that once the incentives were repaired, plant operations improved and prices fell.
The shift in generator behavior is even more significant when each of the plants is modeled on an hour-by-hour basis from Jan. 1, 1997 through Sept. 30, 2001. Table 1 shows the forecasted operations of the plants based on market prices for energy, natural gas, and NO x RECLAIM credits. 22
Actuals are significantly lower than forecasted levels from May 2000 through June 2001-the duration of the California crisis. After FERC's intervention in the market, the deviation between actual operations and forecasted operations fell from 6,030 megawatts to 699 megawatts.
Actual generation for the plants analyzed in Table 1 increased after the WSCC wide price cap was implemented, even though overall prices decreased markedly after the onset of price controls.
Overall, the standard model of economic dispatch of these plants fits very well before the crisis and after the crisis. During the crisis, the plants generated 6,030 megawatts less than a market model would have predicted.
Enron's Role in the Market
Clearly, enormous concentration in California markets was required for this to take place. FERC does not accumulate the data necessary to show the degree of concentration on a systematic basis. FERC does require energy marketers to file quarterly reports. Enforcement of this provision is weak. Some marketers fail to file their reports. Others file their reports in illegible or illogical formats. Still others, like Enron, do not specify any detail on the hubs where they bought and sold electricity.
Figure 6 () shows Enron's share of the major California hubs over time. The data used to generate this chart was taken from sales and purchases of major Enron trading partners, who do show where Enron's transactions take place.
Figure 6 matches our detailed research on Enron's trading activities. 23 Enron's marketshare-for both sales and purchases-increased dramatically in 2000. By the fourth quarter of 2000, the evidence from FERC's quarterly marketing reports indicated that Enron's sales represent nearly 30 percent of the market. As Enron entered 2001, the growth of its wholesale operations appears to have stalled. Overall statistics indicate that Enron's physical sales declined after the fourth quarter of 2000.
In almost any other commodity market, a 30 percent marketshare is clearly sufficient to exercise price leadership. Pacific Gas and Electric's share of California wholesale markets before April 1, 1998 was similar, and its ability to use its scale to affect prices had long