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CAISO Studies on Market Power

CAISO Studies on Market Power. June 18, 2001. Outline. 1. How much did the LACK OF POLITICAL LEADERSHIP / LUNACY cost California consumers? + LUNACY = CPUC did not accept $60/Mwh last year + unwillingness to fix credit problems + Bad CDWR buying habits + other

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CAISO Studies on Market Power

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  1. CAISO Studies on Market Power June 18, 2001

  2. Outline 1. How much did the LACK OF POLITICAL LEADERSHIP / LUNACY cost California consumers? + LUNACY = CPUC did not accept $60/Mwh last year + unwillingness to fix credit problems + Bad CDWR buying habits + other 2. Analyze key Cal ISO studies dealing with "overearning" and market abuse. + Methodological faults + Analyze Key Findings + Develop appropriate "Enron" responses

  3. Outline (contd.) 3. Develop framework to assist in responding to political "calls" for market controls + Understand better who "won" from the WEALTH TRANSFER + How much was transferred to "Texas generators"? 4. Other fixes still needed + A/S markets in California + Governance issues + other?

  4. DMA-ISO Conclusions Gouging of excess payments by Energy suppliers / traders in the California Markets, during the period May - November 2000

  5. DMA Studies • The Wolak study arrives at a measure for measuring market power and concludes that total payments of $785 million in excess of competitive levels were made • The DMA studies compare actual bids submitted by certain suppliers on an aggregate basis and individually against competitive benchmarks established by DMA. • Sheffrin of the DMA identifies a list of suppliers who had exercised market power • In her analysis she arrives at total excess payments of $505.2 Million

  6. Drawbacks of the studies • Fail to treat the entire Western Interconnection region as an integrated market • an utter disregard to supply and demand conditions outside of California • Apply an arbitrary heat rate-based cost standard for importers that does not reflect resource scarcity in the Pacific Northwest • Total disregard for opportunity costs that impact competitive market prices in California

  7. Drawbacks in the studies • Unrealistic assumptions regarding cost of new power • Instead of placing attention on programs that would help alleviate the supply-demand imbalance, the ISO’s call for greatly expanded price controls will deter investment in new generation

  8. Issues • Public utilities - not private utilities - are the ones who are making more money (This will shortly be quantified) • California’s own public utilities are more likely to exercise market power as they have greater maneuverability (in terms of volumes of supplies) than anybody else to game the market • ISO substantially reduces the “monopoly rents” earned by BPA, based on information supplied to it by the latter.

  9. Numberspeak • Less than 19% of the excess payments made have gone to Texas-based suppliers / traders (Source: Decoded Sheffrin Study) • Close to 75% of the excess payments made have gone to Non-Texas-based suppliers (Source: ) • California’s own Public Utilities supply nearly ……% of the energy supplied in California in the year …… (Source: ) • Texas-based suppliers contribute only …..% of the supplies into California (Source: .)

  10. ISO’s Statements • President and CEO, CA ISO acknowledges that “the findings contained therein (DMA Studies) were preliminary and that they were based on assumptions derived from information available to the ISO at that time” • (Source: Letter from Terry M. Winter to Stephen Oliver (VP, BPA)

  11. Conclusions • With less than ……% of supply share into the California markets, allegations of exercise of market power are unfounded • ISO admits that its findings are preliminary • Subsequent reassessment by ISO of the excess payments made to BPA casts some doubts on the methodology employed • ISO should pay greater attention to alleviating the supply-demand situation than to seeking price caps

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