Experience with bidding generation in California

Summary form only given, as follows. During the California energy crisis, regulators, including the FERC, had found strong evidence of the exercise of market power in the prices prevailing in the ISO and power exchange (PX) markets, but had not identified evidence that any individual supplier in the California market exercised market power to create those prices. Several studies have been performed since then to establish the linkage between individual suppliers´ bidding behavior and market prices. These studies rely on individual supplier bidding data in California markets, bilateral and PE schedules from generation units, unit specific heat-rates for generation levels, and scheduled outages, etc. In this presentation, the results of such studies are presented to demonstrate the significant market power impact in the California ISO and PX market. The author uses the system price-cost mark-up approach and evaluates how these suppliers bid to exercise such excessive levels of market power. He further analyzes the bidding strategies that the suppliers used, mainly economic withholding and physical withholding, to raise the market clearing prices above competitive levels in the California electricity markets. Finally, he provides evidence that this bidding strategy is consistent with a supply function equilibrium of the profit maximizing behavior for oligopolistic firms.