CA Electricity Prices Result Of Market Power, Not Gaming?

Such is the conclusion of a California Independent System Operator report released Monday. This Wall Street Journal article (subscription required) and this LA Times article (subscription required) discuss the report, but interestingly, they have different slants. The LA Times article has the tone of “here’s a list of companies that did what Enron did” and “it’s just a matter of time before they discover market manipulation”. In contrast, the Wall Street Journal article says

The results support the agency’s long-held claim that the bulk of power overcharges during the state’s 2000-01 electricity crisis didn’t come from market manipulation or gaming strategies, but from the abuse of market power. Market power refers to a company’s ability to use its market share to influence prices.

“We have said all along that the greatest dollar amounts of damage come from (parties) charging high prices because they had the power to do so,” Fishman said. “Still, that doesn’t take away from the importance of addressing gamesmanship.”

The ISO report was submitted last October, per request, to the Federal Energy Regulatory Commission. FERC is handling California’s request that suppliers refund $8.9 billion to the state for charging “unjust and unreasonable” power prices during the energy crisis, when blackouts and price spikes were frequent.

FERC has given California officials until Feb. 28 to submit evidence of market manipulation in the refund case. A FERC judge has already recommended the refund amount be set at $1.8 billion, but the final decision rests with the commission board.

Thus we arrive back at the point that I laid out in this post, where we have to confront the question of how these companies achieved market power in the first place. First, the California restructuring mandated that utilities sell their fossil-fuel generation facilities to these companies. Then the legislation mandated that the utilities buy from these companies in the state-created “faux market” pool, and only day ahead and day of. Gee, d’ya think the legislation gave the generators market power and put the utilities over a barrel?