System market power Department of Market Monitoring Amelia Blanke, Manager, Monitoring and Reporting Market Surveillance Committee Meeting General Session June 7, 2018 California ISO - Public California ISO - Public
Annual report recommendation DMM has recommended that the ISO begin to consider various actions that might be taken to reduce the likelihood of conditions in which system market power may exist and to mitigate the impacts of system market power … 2017 • Tight system conditions in real-time • Day-ahead market showed signs of being less competitive – Not structurally competitive in some hours; record high prices 2018 • Conditions likely to allow for additional potential for system market power – lower hydro – less gas generation (~800 MW compared to summer 2017) – more generation controlled by net sellers (>3,750 MW) 2019 • Conditions exacerbated by FERC Order 831 compliance and ISO proposals to increase bid caps California ISO - Public
Significant amounts of gas generation being retired, while most new generation is from solar. 6,000 Retirements 5,000 Capacity additions/retirements (MW) New generation 4,000 Net yearly total 3,000 2,000 1,000 0 -1,000 -2,000 -3,000 -4,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 California ISO - Public
Resource adequacy requirements sometimes falling short of actual operational demand in key hours. California ISO - Public
Imports offered into CAISO day-ahead and real-time market declining sharply during high loads. 11,000 Net import offer (DA) 10,000 Total imports offered (MW) (HE 19) 9,000 8,000 7,000 Jul-06 6,000 Jun-19 5,000 Aug-01 4,000 Jun-01 Jun-06 Jun-11 Jun-16 Jun-21 Jun-26 Jul-01 Jul-06 Jul-11 Jul-16 Jul-21 Jul-26 Jul-31 Aug-05 California ISO - Public
Competitively priced system level supply limited on high load days in 2017. $1,000 June 18 June 19 June 20 June 21 $900 $800 Day-ahead market $700 supply (HE 20) Bid price ($/MWh) $600 $500 $400 $300 $200 $100 $0 -$100 -$200 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 Cumulative incremental MW California ISO - Public
Indicators of market power • Structure – Pivotal suppliers – System residual supply index (RSI) • Conduct – Supply bids • Bid price vs. marginal cost • Hockey stick bidding • Impact – Market prices vs. marginal costs California ISO - Public
Structural measures of market power • Pivotal supplier test: If supply is insufficient to meet demand with the supply of any individual supplier removed, then this supplier is pivotal. • Residual supply index. The residual supply index is the ratio of supply from non-pivotal suppliers to demand. A residual supply index less than 1.0 indicates an uncompetitive level of supply. Example: Demand = 100 MW Total Supply = 120 MW (30 MW pivotal supplier) RSI = (120 MW – 30 MW) / 100 MW = .9 • Oligopoly : Consider degree to which 2 or 3 suppliers are jointly pivotal. California ISO - Public
DMM’s System RSI calculation (day -ahead) • Supply – All internal supply bid into the day-ahead market – Imports scheduled/bid into the day-ahead market • Demand – Actual system load, plus – Ancillary services requirements • Virtual supply/demand bids are excluded California ISO - Public
System RSI calculation for day-ahead market (2017) 1.5 Single pivotal supplier test (RSI1) 2017 Residual supply index for system energy 1.4 Two pivotal supplier test (RSI2) 2017 Three pivotal supplier test (RSI3) 2017 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0 50 100 150 200 250 300 350 400 450 500 Hours California ISO - Public
Results for 2017 with more than 3,750 MW of gas generation reassigned to different suppliers as reported in June 2018. 1.5 Single pivotal supplier test (RSI1) 2017 Two pivotal supplier test (RSI2) 2017 Residual supply index for system energy 1.4 Three pivotal supplier test (RSI3) 2017 RSI1 with SC change 1.3 RSI2 with SC change RSI3 with SC change 1.2 1.1 1.0 0.9 0.8 0.7 0 50 100 150 200 250 300 350 400 450 500 Hours California ISO - Public
Potentially pivotal suppliers (2017 results) 160 140 120 Number of hours 100 80 60 40 20 0 3 4 5 6 7 8 9 10 11 12 13 14 15 16 19 20 >20 Number of potentially pivotal suppliers (RS3) California ISO - Public
Bid price vs default energy bids for gas resources Net buyers (June 21, 2017) California ISO - Public
Bid price vs default energy bids for gas resources Net sellers (June 21, 2017) California ISO - Public
Import bids – June 21, 2017 California ISO - Public
Comparison of system marginal energy cost to highest cleared default energy bid segment California ISO - Public
Comparison of CAISO day-ahead prices with bi-lateral day-ahead prices (peak hours) $180 System marginal energy price $160 Palo Verde $140 Mid-Columbia $120 Price ($/MWh) $100 $80 $60 $40 $20 $0 3 6 10 12 14 18 20 24 26 28 1 3 7 9 11 15 17 21 23 25 29 31 5 7 11 13 15 19 21 25 27 29 July August September California ISO - Public
Correlation of system marginal energy price with RSI3 California ISO - Public
Discussion • Additional metrics or analysis? • MSC recommendations for mitigation? • Impact on proposed market changes? • Other ideas? California ISO - Public
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