hal@finney.org (hal@finney.org) writes:
>The market is a "first price" auction, where suppliers and utility
>companies offer and bid on electricity at a certain price per
>megawatt-hour (MWh). With this kind of auction, whatever the highest
>price is for the last bit of electricity, that price is used for all
>the electricity sold during that time period. So if some providers are
>selling for $100/MWh, but that only covers 80% of requirements, and then
>others are selling enough for $150 to cover 10% more, and then some are
>selling for $200 to cover the last 10%, everyone pays $200/MWh for all
>the electricity.
All the power is being priced by the spot market? That seems strange
and probably foolish. Businesses that are dependent on commodities like
oil typically insulate themselves from some of the volatility by buying
a lot of their needs under multi-year fixed price contracts.
>The greater hope was for competition among power plant operators.
>This seems to be what is breaking down. At the time the California
>system was implemented, Californians were paying $100/MWh, twice the
>national rate. After deregulation it went down for a while. But starting
>this past summer the price has gone unstable and has had some extremely
>high peaks. For the past two weeks it has been especially bad and has
>reached over $1000/MWh some days.
The high peak prices don't seem surprising. I would expect market pricing
to offset this by driving down prices during periods of low demand. I can't
tell whether this is actually happening.
>It's not known whether the power generators are colluding to keep the
>price this high. IMO there are enough competitors in the market that
>collusion seems unlikely. People say that operators are pulling plants
How many independently owned producers are there? I'm aware of 2 large
publicly traded companies (Calpine and AES). I've heard a rumor that some
of the production is done by companies with the same parent that handles
the transmission.
I'm sure my information is incomplete, but it sounds like a fairly
concentrated industry, but not concentrated enough that end users would
have major problems getting reasonably competitive prices if they were
choosing spot market prices.
>I suspect that the real explanation is simply a matter of supply and
>demand. As Harvey says, demand is largely inelastic and doesn't change
>with price, since the prices aren't being passed through. And supply has
>been hampered due to delays in constructing new plants and environmental
>regulations. Any time you have a limited supply and inelastic demand,
>you will get price spikes as demand approaches supply.
I think even without the environmental regulations, it's easy to imagine
that companies that until recently have been monopolies would have
inadequately predicted the effects of the unusually long economic expansion.
-- ------------------------------------------------------------------------------ Peter McCluskey | Fed up with democracy's problems? Examine Futarchy: http://www.rahul.net/pcm | http://hanson.gmu.edu/futarchy.pdf or .ps
This archive was generated by hypermail 2b30 : Mon May 28 2001 - 09:50:39 MDT