ISO PublicISO PUBLIC

Analysis of system level market

power

Amelia Blanke

Manager, Monitoring & Reporting

Department of Market Monitoring

Market Surveillance Committee Meeting

General Session

June 7, 2019

ISO Public

DMM analysis of structural market power

Page 2

Comments on CAISO’s Analysis of Structural System-Level Competiveness,

Department of Market Monitoring, May 20, 2019

http://www.caiso.com/Documents/DMMComments-SystemMarketPowerAnalysis.pdf

Hours with RSI < 1 (2018)

With

virtual supply

Without

virtual supply

Input bids

Transmission losses

Self-scheduled exports

A/S bids without energy bids No No

Virtual supply No

RSI 1 < 1 5 34

RSI 2 < 1 18 100

RSI 3 < 1 45 305

A/S bids without energy removed

ISO Public

DMM analysis of structural market power updated to

include ancillary service bid segments without

overlapping energy bids.

Page 3

With

virtual supply

Without

virtual supply

With

virtual supply

Without virtual

supply

Input bids

Transmission losses

Self-scheduled exports

A/S bids without energy bids No No

Virtual supply No No

RSI 1 < 1 5 34 5 31

RSI 2 < 1 18 100 17 91

RSI 3 < 1 45 305 43 272

A/S bids without energy removed A/S bids without energy not removed

Hours with RSI < 1 (2018)

ISO Public

Average net cleared virtual bids in 2018

Page 4

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

MW

Virtual supply (cleared) Virtual supply (offered) Virtual demand (cleared)

Virtual demand (offered) Net virtual (cleared)

ISO Public

Analysis of uncompetitively high priced supply

and “almost” self-scheduled exports.

Average hourly MW of high price supply and exports

during 272 hours with RSI3 < 1

Page 5

High priced Total high priced

Bid price range

Import

energyGas PDR/RDR Import AS Total supply

exports (MW) supply + exports

$1000 to $990 404 67 58 17 545 198 744

$1000 to $750 614 137 71 17 839 232 1,071

$1000 to $590 665 146 118 17 946 264 1,210

High priced supply (MW)

ISO Public

Market competitiveness – 2018 Annual Report

• CAISO’s energy markets were generally competitive in 2018.

• Prices in the day-ahead market were significantly in excess of

competitive levels in some hours when net load that must be

met by gas-fired units is highest.

• Market for capacity needed to meet local requirements is

structurally uncompetitive in all local areas.

Page 6

2018 Annual Report on Market Issues and Performance, DMM.

http://www.caiso.com/Documents/2018AnnualReportonMarketIss

uesandPerformance.pdf

ISO Public

Net sellers supply bids vs. default energy bids for gas

units (July 24, 2018 hour 20).

Page 7

-$200

-$100

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000

Price

($

/MW

h)

Cumulative incremental MW

Day-ahead bid price

Default energy bids

ISO Public

Net buyers supply bids vs. default energy bids for gas

units (July 24, 2018 hour 20).

Page 8

-$200

-$100

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

Price

($

/MW

h)

Cumulative incremental MW

Day-ahead bid price

Default energy bids

ISO Public

Price-cost markup based on system marginal prices

with cost-based bids for gas units (2018)

Page 9

$10

$20

$30

$40

$50

$60

$70

$80

$90

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Lo

ad

-we

igh

ted

ave

rag

e p

ric

e (

$/M

Wh

)

System marginal energy cost

Base-case

Competitive scenario (gas at minimum of DEB, bid-price)

ISO Public

Average hourly price-cost markup is highest in evening

ramping hours (HE 17-21).

Page 10

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Price

-co

st-

ma

rkup

($

/MW

h)

2017 2018

ISO Public

Duration curve of highest hourly price-cost markups

Page 11

$0

$20

$40

$60

$80

$100

$120

$140

0 50 100 150 200

Pri

ce

-co

st

ma

rku

p (

$/M

Wh

)

Hours

2018 price-cost markup ($/MWh)

2017 price-cost markup ($/MWh)

ISO Public

Markup based on highest cost gas-fired unit dispatched

each hour in day-ahead market (2017-2018).

Page 12

$0

$100

$200

$300

$400

$500

$600

$700

0 50 100 150 200

Pri

ce

-co

st

ma

rku

p (

$/M

Wh

)

Hours

2018 Price-cost markup ($/MWh)

2017 Price-cost markup ($/MWh)

ISO Public

Comparison of competitive baseline price with day-

ahead prices (using day-ahead market software).

Page 13

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2017 2018

Ave

rag

e p

ric

e (

$/M

Wh

)

Competitive scenario - gas at DEBs

Average load-weighted day-ahead price

Average load-weighted base case price

ISO Public

System market power recommendations (2017 – 2018)

• ISO should begin to consider various actions that might be taken to

reduce/mitigate potential system market power.

• DMM recognizes that this recommendation involves major market design

and policy issues, including the possible development of new market design

options to mitigate potential system market power.

• DMM recognizes that the competitiveness of the ISO’s markets is heavily

affected by the procurement decisions of the state’s load-serving entities

and policies of their local regulatory authorities.

• Because of the potential severity of the impact of market power, DMM

made this recommendation at this time so that the ISO, stakeholders and

regulatory entities can give thorough consideration to this issue and

potential options to address it.

Page 14

ISO Public

Potential measures to reduce the potential for or

mitigate the effect of system market power:

• Begin consideration of options for system market power mitigation.

• Set local and system resource adequacy requirements sufficiently high to ensure

reliability (which may also reduced likelihood of non-competitive market outcomes).

• Reexamine resource adequacy provisions relating to imports (e.g. must offer obligation

in day-ahead only, resource or system backing RA imports, etc.)

• Strengthen the penalties and the enforcement of the penalties for must-offer obligations.

• Carefully track and seek to limit out-of-market purchases of imports at above-market

prices, which can encourage economic and physical withholding of available imports.

• Closely monitor for potential errors or software issues affecting market power mitigation.

Page 15