Michael Giberson The ERCOT independent market monitor (IMM) has released its report on the February 2, 2011 rolling blackouts. Excerpts from the report introduction are below, but let's get to the meat of the matter. The IMM was asked (1) whether there was any evidence that market participants tried to manipulate the market for financial gains during the period, and (2) whether markets operated efficiently and as expected during the period. The short answers are (1) no evidence of manipulation was found, and (2) the markets operated efficiently and outcomes were consistent with the market design. While these may seem like excessively upbeat conclusions given the failings in the ERCOT region that day, the key is to distinguish between the physical systems - which did fail and created significant hardships that day - and the market systems - which appeared to work as intended. The market review concluded market participants faced increasing incentives to have generation available before the event, companies responded to incentives by taking many preparatory steps (nonetheless, inadequate as we see in hindsight), during the emergency companies faced substantial incentives to bring generation to the market, and companies responded to those substantial incentives by engaging in extraordinary efforts to bring offline generators back online. A key image on the manipulation question is Figure 5, which shows the relationship between generation outages and net market position for February 2. In brief, every generation company that was able to keep their forced outages below 10 percent (i.e. 90 percent or higher generator availability) netted a positive revenue flow from the market that day. Those generation companies with forced outages of 20 percent or higher ended up owing money to the market for February 2. It is highly unlikely that a firm profited by withholding generation capability from the market that day. (See the report, pp. 12-14, for additional details on the figure.)
Independent Monitor Finds No Market Abuse…
Michael Giberson The ERCOT independent market monitor (IMM) has released its report on the February 2, 2011 rolling blackouts. Excerpts from the report introduction are below, but let's get to the meat of the matter. The IMM was asked (1) whether there was any evidence that market participants tried to manipulate the market for financial gains during the period, and (2) whether markets operated efficiently and as expected during the period. The short answers are (1) no evidence of manipulation was found, and (2) the markets operated efficiently and outcomes were consistent with the market design. While these may seem like excessively upbeat conclusions given the failings in the ERCOT region that day, the key is to distinguish between the physical systems - which did fail and created significant hardships that day - and the market systems - which appeared to work as intended. The market review concluded market participants faced increasing incentives to have generation available before the event, companies responded to incentives by taking many preparatory steps (nonetheless, inadequate as we see in hindsight), during the emergency companies faced substantial incentives to bring generation to the market, and companies responded to those substantial incentives by engaging in extraordinary efforts to bring offline generators back online. A key image on the manipulation question is Figure 5, which shows the relationship between generation outages and net market position for February 2. In brief, every generation company that was able to keep their forced outages below 10 percent (i.e. 90 percent or higher generator availability) netted a positive revenue flow from the market that day. Those generation companies with forced outages of 20 percent or higher ended up owing money to the market for February 2. It is highly unlikely that a firm profited by withholding generation capability from the market that day. (See the report, pp. 12-14, for additional details on the figure.)