State's Grid Managers Want Changes to Prevent Power Market Manipulation
Photo: Jason Rowe/Flickr/Creative Commons License
The California Independent System Operator (CaISO), the independent agency that manages California's power grid, has applied to the Federal Energy Regulatory Commission (FERC) for changes to its tariff structure so that it can help keep power companies from gaming the grid's power bidding system. CaISO says it's taking this step after noting attempts in April and May to game the grid's "exceptional dispatch" power trading, in which power is bought for the grid manually to cover shortfalls the grid's software fails to anticipate.
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In an email to reporter Jason Fordney at the energy trade publication Platts.com, CaISO spokesperson Steven Greenlee said the ISO could not identify the market participant that attempted to exercise what the agency calls "market power" -- market-based manipulation of spot power prices that counters competitive pressure to keep those prices low. Greenlee did tell Fordney that the amounts of money involved were $2.8 million in April, and $7.7 million in May.
The CaISO says that its existing ability to mitigate market interference kept the losses significantly lower than they could have been. After assessing this vulnerability, however, and a similar weakness in the ISO's "residual imbalance energy" market, the agency has decided to ask FERC for additional authority to control power prices to limit the amount of money companies can make by gaming the grid.
The vulnerability stems from the ISO's need to make sure Californians have enough power, while also making sure the power surplus doesn't run too much above actual demand. These conflicting needs are addressed by having a longer-term market to meet projected demand, and a much shorter-term spot market for peak power in which producers can sell small blocks of power to cover immediate shortages. That short term market commands much higher prices, and in the absence of regulation a less-than-scrupulous power producer might be tempted to work the system in order to maximize the amount of power it sells in that more lucrative spot market.
In essence, the attempts at "market power" CaISO has identified seem similar to the market manipulation in which JP Morgan Ventures Energy has been accused of engaging, according to a July court filing by FERC.
The $10 million or so at risk in this year's alleged gaming of the exceptional dispatch market may be modest compared to the $73 million in improper payments that J.P. Morgan Chase is alleged to have extracted from the markets, but it does point up the continuing risks of tying a famously deregulated market to California's impossibly arcane power distribution system.
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