Empirical Evidence of Strategic Bidding in California ISO Real-time Market
(Summary of Results)
This study builds on previous studies by the California Independent System
Operator Corporation’s Department of Market Analysis (“DMA”) of indications
that prices in the California electricity markets have persisted at levels indicating
that significant market power is being exercised in the California wholesale
This study examines bids by individual suppliers (both instate
and importers) in the real-time imbalance energy market of the ISO in order to
determine whether individual suppliers’ behaviors were responsible for raising
prices above competitive levels.
Resolving that issue affirmatively, it then
explains how suppliers successfully employed bidding strategies to insure high
market clearing prices. The evidence described in this study thus provides a
direct link between the observed pattern of prices and the bidding behavior of
individual suppliers that produced those prices.
Previously, regulators, including
the FERC, have found strong evidence of the exercise of market power in the
prices prevailing in the ISO and Power Exchange (PX) markets, but have been
unable to identify evidence that any individual supplier in the California market
exercised market power to create those prices.
This report reveals the linkage
between individual suppliers’ bidding behavior and market prices by examining
information available to DMA, including individual supplier bidding data in
California markets, bilateral and Power Exchange schedules from generation
units, unit specific heat-rates for generation levels, and scheduled outages.
See Comments of the ISO on November 1, 2000 Order, Attachment A, November 22, 2000.
Additionally, several analyses have been filed at FERC showing consistent findings on the level
of price cost markup in the California energy markets, including “Diagnosing Market Power in
California’s Restructured Electricity Markets”, (Borenstein, Bushnell, and Wolak), August 2000 ,
MSC Report, September 6, 2000;
An Analysis of the June 2000 Price Spikes in the
California ISO’s Energy and Ancillary Service Markets
; and Joskow/Kahn. "A Quantitative
Analysis of Pricing Behavior in California’s Wholesale Electricity Market During Summer 2000."
This study reviewed bidding activities from 5 large in-state non-investor owned utility suppliers
and 16 importers in the real time market of CA ISO for each hour between May and November of
Both the November 1, 2000 FERC proposed order on California power market and the
accompanying staff report contained a finding that the ISO and PX electricity markets were not
They did not, however, identify actions of individual suppliers exercising