A Review of ISO New England's Proposed Market Rules

This report reviews the proposed rules for restructured wholesale electricity markets in New England. We review the market rules, both individually and collectively, and identify potential problems that might limit the efficiency of these markets. We examine alternatives and identify the key tradeoffs among alternative designs. We believe that the wholesale electricity market in New England can begin on December 1, 1998. However, improvements are needed for long-run success. We have identified four major recommendations: 1. Switch to a multi-settlement system. 2. Introduce demand-side bidding. 3. Adopt location-based transmission congestion pricing, especially for the import/export interfaces. 4. Fix the pricing of the ten minute spinning reserves.Auctions; Multiple Object Auctions; Electricity Auctions

Distributed Stochastic Market Clearing with High-Penetration Wind Power

Integrating renewable energy into the modern power grid requires risk-cognizant dispatch of resources to account for the stochastic availability of renewables. Toward this goal, day-ahead stochastic market clearing with high-penetration wind energy is pursued in this paper based on the DC optimal power flow (OPF). The objective is to minimize the social cost which consists of conventional generation costs, end-user disutility, as well as a risk measure of the system re-dispatching cost. Capitalizing on the conditional value-at-risk (CVaR), the novel model is able to mitigate the potentially high risk of the recourse actions to compensate wind forecast errors. The resulting convex optimization task is tackled via a distribution-free sample average based approximation to bypass the prohibitively complex high-dimensional integration. Furthermore, to cope with possibly large-scale dispatchable loads, a fast distributed solver is developed with guaranteed convergence using the alternating direction method of multipliers (ADMM). Numerical results tested on a modified benchmark system are reported to corroborate the merits of the novel framework and proposed approaches.Comment: To appear in IEEE Transactions on Power Systems; 12 pages and 9 figure

Diagnosing Market Power in Chile´s Electricity Industry

Chile’s electricity market is modeled as a Cournot duopoly with a competitive fringe. Due to the importance of hydro-storage resources (62% of total generation in 2000) particular care was given to the hydro scheduling issue. The model was estimated over a 1-month planning horizon using real cost and load data for April 2000. I found that the largest producer would be able to get markups that ranged from 66% to 76% (72% in average) when price elasticity was –1/3. In addition hydro resources are inefficiently allocated as production is shifted from high demand periods to low demand periods. Final equilibrium is sensitive to the value of the price elasticity of demand. Four different measures that could be implemented to reduce the potential for market power were analyzed: the divestiture of all or a fraction of Firm 1’s hydro capacity, the divestiture of all of its thermal plants and the role of contracts. Results indicated that since Firm 1 exercises its market power mainly through its hydro resources, the divestiture of the thermal plants would have a negligible effect in the degree of market power that is exercised, although total output and price are closer to the competitive equilibrium. The divestiture of hydro plants, although an effective measure in terms of reducing distortions, would probably be difficult to implement. Requiring producers to sign contracts in advance proved to be successful in reducing incentives to manipulate prices by the firms; in addition, I found that the more contracted is the firm, hydro scheduling is more efficient, meaning that more hydro production is allocated to periods of high demand and less to periods of low demand.

Market Power in Mixed Hydro-Thermal Electric Systems

This paper shows that, unlike what has been found in other papers, a hydro reservoir is an effective tool to exercise market power. Its appealing as a tool is enhanced by the fact that there is no need to constrain total hydro production - a practice too easy to detect -; it suffices to distort the intertemporal allocation of hydro production over time. A hydro-producer may increase his profits by exploiting differences in price elasticity of demand across periods, allocating too little supply to less elastic periods and too much to more elastic periods. Differences in price elasticity across periods may result from the combination of a fluctuating market demand and capacity or transmission constraints that bind intermitently. This hydro scheduling decision is only available to hydro producers as thermal generators are not able to "store electric power" and decide when to sell it. It is also shown that total hydro production is not a sufficient indicator of market power being exercised as hydro producers may exercise market power even when all the water available in the\reservoir is used. The real indicator of market power being exercised is the hydro scheduling strategy usedUtilities; Market Power; Scheduling of Hydro-Reservoirs.