https://www.e-education.psu.edu/ebf483/node/821

 

Refer to Lesson 7

 

 

1. The California PX auction cleared in a way that is very similar to the economic dispatch procedure we studied in Lesson 4. The offers of generators were arranged in increasing price order and the PX price would be set by the intersection of that supply curve with the demand curve (see figure 7.5 in the lesson).

 

Suppose that there were four generators in the California PX market. All generators have 20 MW of capacity. Generator A submits a supply offer of $20/MWh; Generator B submits a supply offer of $35/MWh; Generator C submits a supply offer of $50/MWh; and Generator D submits a supply offer of $80/MWh.

 

Suppose that demand in California was 55 MWh and that demand is totally price inelastic (so that the demand curve is a vertical line, as we had done with economic dispatch in Lesson 4). Calculate the clearing price in the PX market.

 

2. This question builds on the set of generators and the result of Question 1. All generators schedule their power to be delivered in the SP15 zone. This, however, would congest the transmission line going into SP15. The California ISO must now solicit adjustment bids. The California ISO needs to reduce the scheduled flow on the transmission line going into SP15 by 20 MW.

 

Generators A and B are located in zone NP15; Generator C is located in zone ZP26 and Generator D is located in zone SP15.

 

Generator A submits an adjustment ofor of $10 per MWh to re-schedule its energy to be delivered in NP15. Generator B submits an adjustment ofor of $35/MWh to reduce its output. Generator C does not submit an adjustment offer. Generator D submits an adjustment offer of $80/MWh to increase power output within zone SP15.

 

The California ISO needs to reduce loading on the SP15 transmission line by 20 MW in the cheapest way possible. What should it do, and what would the resulting zonal prices be?

 

3. Joskow's paper discusses some strategic ways that the owners of power plants could have exercised market power in the California PX market (this is different than what Enron did, which mostly affected the zonal adjustment prices calculated by the California ISO). Again drawing on the market with four generators in Question 1, suppose that you owned both Generators A and D. Demand in California is 55 MWh. Describe a way that you could manipulate the PX auction to increase the clearing price, and calculate whether your revenues would increase under such a strategy.

 

4. This question is based on the discussion on pp 6 to 8 in the Sweeney reading, where he discusses the need for retail prices to reflect changes in wholesale prices. It is well known that the short run price elasticity of demand for electricity is extremely low, perhaps around -0.1. Given such a low price elasticity of demand, evaluate Sweeney's argument that price spikes could have been avoided if California had allowed retail rates to rise at the same time that wholesale prices were rising. Do you agree? Why or why not? Please base your answer on economic principles and you may wish to reference Figures 2 through 4 in the Sweeney reading.

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