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The Yellow Book and the Blue Book. 1993: PUC staff produces Yellow Book Blames high prices on regulation and planning Proposes alternative forms of competition April 20,1994: Blue Book endorses most radical Yellow Book proposal - “Direct Access.” - PowerPoint PPT Presentation
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The Yellow Book and the Blue Book
• 1993: PUC staff produces Yellow Book– Blames high prices on regulation and planning– Proposes alternative forms of competition
• April 20,1994: Blue Book endorses most radical Yellow Book proposal - “Direct Access.”– Intends to let retail users make same types of transactions
utilities have benefited from.– Utility wires will be regulated “common carriers”– Provisions for utilities to recover stranded costs
Stranded costs
• If competition comes utilities need ways to recover costs of uneconomic plants– This becomes the real central issue
• With no explicit legal right to recovery, they claim a metaphorical contract exists– They take on service obligations in return for a low-
risk return instead of a competitive one– Claim that PUC required building of nuclear plants
and above-market PURPA contracts
Reaction to the Blue Book I
• Pro: Independent power, marketers, large users, some small users, some environmental groups, and PG&E
• Anti: SoCal Edison, San Diego Gas & Electric, some environmentalists, and small users
• Ultimately anti: A majority of the PUC
• Hopelessly split: Economists
Reaction to the Blue Book II
• PG&E endorses opening existing market, slowly with guaranteed stranding recovery
• SCE and SDG&E [monopolists from birth] propose “PoolCo” to bring competition
• PoolCo takes bids and sets hourly prices– Said to be patterned on U.K. pool
• Utilities remain monopolists who pass on PoolCo price and bill for other costs
The PUC picks PoolCo, and then...
• Nearly a year passes, the centralized market gains no support but PUC votes for it– Probably because its easier to regulate and maintains
power of retail monopoly utilities
• Legislature concerned about PUC instituting massive change without its approval
• PUC fears that Poolco opponents will sway legislature, brokers a compromise in Sept. 1995
The market compromise
• There will be a statewide power exchange [PX] that functions like Poolco
• Utilities must do all their purchases and sales through it
• Non-utilities can use the PX or arrange bilateral transactions (“schedules”)
• Both bilateral and PX schedules will be executed by an Independent System Operator (ISO)
Assembly Bill [AB] 1890 [I]
• Extensive negotiations lead to unanimous passage of comprehensive law Sept. 1996
• Bilateral and PX markets will coexist
• ISO and PX to be nonprofit corporations governed by “stakeholders”
• Bill creates Electricity Oversight Board of political appointees to oversee ISO and PX
AB 1890 [II]
• Large power users get rates frozen at 1996 levels
• Small ones get a 10 percent reduction, financed by bonds payable through 2010
• Utilities must collect stranded costs using “headroom” in frozen rates
• Headroom = rate - fixed costs - PX energy cost – Headroom fluctuates with PX price
AB 1890 [III]
• SCE and PG&E [but not SDG&E] must divest half of their in-state gas-fired plants
• All three decide to sell all of these plants
• Premium prices on plants are applied to stranded costs
• Most stranded costs must be collected by Mar. 31, 2002.
Changing Times
Then Now
POWER GENERATORS
UTILITY
CUSTOMERS
POWER GENERATORS POWER MARKETERS
SCHEDULING COORDINATORS
CALIFORNIA ISO
CUSTOMERSUTILITY
ESPs
California Power ExchangeCalifornia Power Exchange
Clearing the PX Markets
• Demand and supply bids accepted - 24 settlement periods
• Bids aggregated to form demand and supply curves
• MCP is intersection of supply and demand bids
• May be adjusted for congestion
Determining the Market-Clearing Price
0 10 11 15 20 22 30 35 40200
400
600
800
1,000
1,200
1,400Aggregate Demand
Aggregate Supply
MCP Hour
The PX as a Commodity Exchange
• Role of exchanges in commodity markets– Facilitate trading by acting as counterparty– Provide price discovery– Provide liquidity– Allow construction of new derivatives– Clearing and settlement– Credit management
Market Structure
PX Auction
Bids
Schedules ofOther Schedule
Coord
PX Schedules
DayAheadMarket
DayAheadMarket
PX Auction
Bids
PX Schedules
HourAheadMarket
HourAheadMarket
Schedules ofOther Schedule
Coord
RealTime
Market
RealTime
Market
Ancillary Services MarketAncillary Services Market
Bids from PX Participants and Other Market Participants
Resources for Real Time Energy
Day-Ahead & Hour-Ahead
Trade Deliveries
CalPX Daily Pricesfrom April 1 - March 31
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Ap
ril
Ma
y
Ju
ne
Ju
ly
Au
gu
st
Se
pte
mb
er
Oc
tob
er
No
ve
mb
er
De
ce
mb
er
Ja
nu
ary
Fe
bru
ary
Ma
rch
19
98
19
99
PR
ICE
($/M
Wh)
CalPX Daily Pricesfrom April 1 - March 31
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Ap
ril
Ma
y
Ju
ne
Ju
ly
Au
gu
st
Se
pte
mb
er
Oc
tob
er
No
ve
mb
er
De
ce
mb
er
Ja
nu
ary
Fe
bru
ary
Ma
rch
19
98
19
99
PR
ICE
($/M
Wh)
The First Year of PX Prices The First Year of PX Prices
Day-ahead market Day-ahead market running smoothlyrunning smoothlyaverage price less average price less
than 2.5* than 2.5* cents/kWhcents/kWh
Price volatilityPrice volatility90% of time price 90% of time price
less than 4 less than 4 cents/kWhcents/kWh
Day-Ahead HourlyPrice Duration Curvefor April 1 - March 31
Min MCP: $0 Max MCP: $190.94 Avg. MCP: 24.44
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
0
20
40
60
80
10
0
Day-Ahead HourlyPrice Duration Curvefor April 1 - March 31
Min MCP: $0 Max MCP: $190.94 Avg. MCP: 24.44
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
0
20
40
60
80
10
0