System market power Department of Market Monitoring Amelia Blanke, - - PowerPoint PPT Presentation

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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

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

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Significant amounts of gas generation being retired, while most new generation is from solar.

• 4,000
• 3,000
• 2,000
• 1,000

1,000 2,000 3,000 4,000 5,000 6,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Capacity additions/retirements (MW) Retirements New generation Net yearly total

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Resource adequacy requirements sometimes falling short of actual operational demand in key hours.

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Imports offered into CAISO day-ahead and real-time market declining sharply during high loads.

Jun-19 Jul-06 Aug-01 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 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 Total imports offered (MW) (HE 19) Net import offer (DA)

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Competitively priced system level supply limited on high load days in 2017.

• $200
• $100

$0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 Bid price ($/MWh) Cumulative incremental MW June 18 June 19 June 20 June 21

Day-ahead market supply (HE 20)

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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

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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.

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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

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System RSI calculation for day-ahead market (2017)

0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 50 100 150 200 250 300 350 400 450 500

Residual supply index for system energy

Hours

Single pivotal supplier test (RSI1) 2017 Two pivotal supplier test (RSI2) 2017 Three pivotal supplier test (RSI3) 2017

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Results for 2017 with more than 3,750 MW of gas generation reassigned to different suppliers as reported in June 2018.

0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 50 100 150 200 250 300 350 400 450 500 Residual supply index for system energy Hours Single pivotal supplier test (RSI1) 2017 Two pivotal supplier test (RSI2) 2017 Three pivotal supplier test (RSI3) 2017 RSI1 with SC change RSI2 with SC change RSI3 with SC change

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Potentially pivotal suppliers (2017 results)

20 40 60 80 100 120 140 160 3 4 5 6 7 8 9 10 11 12 13 14 15 16 19 20 >20 Number of hours Number of potentially pivotal suppliers (RS3)

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Bid price vs default energy bids for gas resources

Net buyers (June 21, 2017)

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Bid price vs default energy bids for gas resources

Net sellers (June 21, 2017)

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Import bids – June 21, 2017

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Comparison of system marginal energy cost to highest cleared default energy bid segment

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Comparison of CAISO day-ahead prices with bi-lateral day-ahead prices (peak hours)

$0 $20 $40 $60 $80 $100 $120 $140 $160 $180

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

Price ($/MWh) System marginal energy price Palo Verde Mid-Columbia

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Correlation of system marginal energy price with RSI3

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Discussion

• Additional metrics or analysis?
• MSC recommendations for mitigation?
• Impact on proposed market changes?
• Other ideas?