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Electric Restructuring-CA Versus IL

Electric Restructuring-CA Versus IL. California Market Structure. California has two market-making structures- the California Power Exchange (PX) and the CA ISO. The system was built around expected electricity surpluses. CA PX. took bids for day-ahead hourly supply.

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Electric Restructuring-CA Versus IL

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  1. Electric Restructuring-CA Versus IL

  2. California Market Structure • California has two market-making structures- the California Power Exchange (PX) and the CA ISO. • The system was built around expected electricity surpluses.

  3. CA PX • took bids for day-ahead hourly supply. • The PX took as much power as needed for the day starting with the lowest bid and continuing until it had its quota. • The price for the whole market was set by the last successful bidder.

  4. The CA ISO • buys power on the spot market to make up for any unforeseen shortages caused by the PX not buying enough

  5. Divestiture of Generation • To collect stranded cost recovery, utilities had to divest its non-nuclear and non-hydroelectric generating facilities to a non-affiliated entity • Three major IOUs – Pacific Gas and Electric, California Edison and San Diego Gas and Electric did this – purchase most power from unrelated third parties

  6. Retail/Wholesale Rates • Res./Small Bus. Rates • Reduced 10-20% • capped until 12/31/01 or stranded costs were fully recovered • Wholesale rate of electricity • No cap

  7. Results • Prices dropped from 1998 to 1999 •  June 2000 things changed. There was no longer an excess of supply.

  8. Tight supply was caused by several factors: • higher than expected demand - CA economy kept growing and environmental concerns among other things caused new power plants not to be built. • low water levels in Pacific NW caused hydroelectric plants to cut back on power supplied to CA • rising price of natural gas caused cost of gas-fired generation to go up. • gaming of the system by suppliers?

  9. Results: • every bid was snapped up. • avg prices jumped 259% for the year. • Nov/Dec alone, utilities paid more 28% higher than for all of 1999 • ISO regularly must buy on spot market to prevent blackouts • supplier snub PX because ISO spot market has higher prices • by Nov/Dec, ISO buys as much as 1/3 of demand this way compared to 5% earlier

  10. Did suppliers restrict supply to drive up prices?: • Frank Wolak, professor of economics at Stanford and Paul Joskow, economist at MIT say yes. • FERC orders refunds and fines on suppliers

  11. IL • No required divestiture of generation • No PX / long term contracts not prohibited • Retail rates cut 20% and capped • Wholesale rates not capped • Utilities can petition ICC for rate increases if ROR falls below certain levels • There are transmission constraints into IL

  12. Sources • WSJ, “For Power Suppliers, The California Market Loses its Golden Glow, ” 1/25/01, A-1, A-10.)

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