1 / 18

Today : Finish discussion of trading techniques used in CA Reaction of FERC to these issues

Today : Finish discussion of trading techniques used in CA Reaction of FERC to these issues Discussion of how FPA limits market Use of antitrust law to regulate electric and gas markets POLR issues Environmental issues

keaton
Download Presentation

Today : Finish discussion of trading techniques used in CA Reaction of FERC to these issues

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Today: • Finish discussion of trading techniques used in CA • Reaction of FERC to these issues • Discussion of how FPA limits market • Use of antitrust law to regulate electric and gas markets • POLR issues • Environmental issues • Thursday: Is restructuring a good thing? Will it work? If you could determine how and whether energy markets will be regulated, what would you do, and how would you do it?

  2. Trading techniques identified by FERC • Bidding up marginal price when excess capacity is scarce. • Holding back capacity to facilitate #1 • Ricochet  phony sales across state lines to circumvent cap • Incing/Fat boy  overstate loads in day ahead market (at both ends) to get $ for making generation available

  3. = consumer = generator

  4. = consumer = generator

  5. Trading techniques identified by FERC • Bidding up marginal price when excess capacity is scarce. • Holding back capacity to facilitate #1 • Ricochet  phony sales across state lines to circumvent cap • Incing/Fat boy  overstate loads in day ahead market (at both ends) to get $ for making generation available • Death star/load shift  schedule and abandon unneeded load to get $ for congestion relief • Wash trades  paper trades to increase trade volume • Gas market counterparts: El Paso proceeding

  6. Which of these ought to be illegal? • Why or why not? • Bidding up marginal price when excess capacity is scarce. • Holding back capacity to facilitate #1 • Ricochet  phony sales across state lines to circumvent cap • Incing/Fat boy  overstate loads in day ahead market (at both ends) to get $ for making generation available • Death star/load shift  schedule and abandon unneeded load to get $ for congestion relief • Wash trades  paper trades to increase trade volume • Gas market counterparts: El Paso proceeding

  7. Issues: • What did Congress mean by “just and reasonable”? • Are market-based rates (absent collusion or fraud) inherently “just and reasonable”?

  8. Market Manipulation in CA: Trading Techniques Challenging the FERC’s initial explanation • By late 2001 reliance on the spot markets had decreased. • FERC’s initial investigations credited the “perfect storm” explanation: supply shortages, high demand, fuel and emissions costs. • By mid 2002, evidence of “gaming” techniques used by traders emerged. • Several studies published in 2002 suggested that adequate capacity did exist to serve CA demand in 2000 and 2001.

  9. Market Manipulation in CA: Trading Techniques FERC Staff: “[O]ne expects that traders … will utilize various strategies in an effort to maximize profits. But a fundamental aspect of some of the Enron trading strategies is the deliberate use of false information. A market cannot operate properly without accurate information.”

  10. Market Manipulation in CA: Trading Techniques FERC Staff: “Enron’s corporate culture … fostered a callous disregard for the American energy consumer and demonstrates the need for … aggressive market monitoring and enforcement.”

  11. Is the following wholesale price “just and reasonable”? • $200/MWH: • cost = $20/mwh under normal conditions • cost = $30/mwh now because fuel and emissions credits are expensive + • $70/mwh scarcity rent + • 100% ($100/mwh) “risk premium” because buyer is near bankruptcy and is not paying bills

  12. Postscript: • CA refund proceeding: FPA power issue • CA claim $8.9 bln overcharges • FERC 12/02: $1.8 bln • FERC 2003: approx. $3 bln • Unpaid bills from CA buyers: approx $3 bln • Settlements with FERC • CA long term power purchase contracts

  13. Antitrust prohibitions: • Bid rigging • Price fixing • Misuse of monopoly power • How are these laws enforced? • Who enforces them? • How, if at all, do they apply to electricity markets?

  14. POLR Customers … • with bad credit • With a bad location • Who have lost their provider • What kind of customers are these? • What were their rates like under traditional regulation? • What will their rates be like when they get service from a POLR? • Is this fair? Unfair?

  15. Oppenheimer: 3 classes of service, with 3 rates • Transition to market • Short term service • Long term service • How much should each of these cost? • How should this service be priced? • How does its provision affect the electricity market?

  16. Environmental Issues: • Mandatory utility-funded conservation • Social cost dispatch • Integrated resource planning • What happens to these kinds of programs after restructuring? • How does restructuring affect dispatch and investment decisions? • How can restructuring states retain incentives for cleaner sources of power?

  17. Implications for Restructuring • How can the FERC and/or states prevent a recurrence of the CA problem? • Can electricity markets ever work satisfactorily? • Can consumers live with price volatility – the kind that sends signals that create long term efficiency? • Is market manipulation inevitable? • What can/should governments do to safeguard consumers AND let the market work?

  18. = consumer = generator

More Related