the mysterious new york market

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    The M st er iousNew York Mark e t

    Robert McCullough

    October 15, 2009

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    t he New York ISO

    Of the U.S.

    New York ISO representsthe market with the mostdistorted bids on a dailyas s

    Distorted bids occur in

    both day ahead and hour

    A large number ofbidders and generators areinvolved with as much as

    10% of total supplyinvolved

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    oc ey t c s Any bid whose higher segments

    represent unrealistic prices Generally reflect price setting in

    markets where the highest bid is

    returned by the LP as the pricewhen all supply bids are

    exhausted

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    oc ey t c s Also used for economic

    withholding May reflect computational

    problems ERCOTs algorithm

    tends to time out

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    One of hundreds of

    per hour

    Generator #25855750 adds asmall increment to its bid curve at999

    Obviously, the odds that$999/MWh actually represents costis very, very low

    800

    1000

    1200

    e sma ncremen s a ossto this generator since it seldomdispatches

    200

    400

    600

    $/MW

    0

    0 50 100 150 200 250 300

    Megawatts/Hour

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    The New York ISOReceives

    Approx imate ly

    2,000 Simi lar B ids A

    Day

    So far in March we have seen43,000 bids with segments priced

    These correspond to 55different bidders, submitting bids

    from many different unitsthat the bids just represent NewYork City

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    The d ist r ibut ion o f

    b ids inc ludes many

    b ids a t spec i f ic

    arb it ra ry -- p r ic es

    $999/MWh is the secondmost common maximum bid,

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    Ec onom ic t heor assures us that a l l

    o f t hese b idders are

    m ak ing a ser ious

    m is take

    In the presence of perfectcompetition, no bidder should

    affect prices

    If he systematically bids

    above his marginal cost, he will notbe dis atched durin man eriodswhen the plant would be profitable

    If he bids below marginalcost, he may be dispatched at aloss

    Logically, all bidders bid atmarginal cost

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    Ec onom ic t heor assures us that a l l

    o f t hese b idders are

    m ak ing a ser ious $1,200.00 DayAheadSupplyCurveFor2/1/20098:00A.M.

    mis take

    The significant amount ofmegawatts committed only above $800.00

    $1,000.00

    , , implies that a lot of bidders aremaking a lot of mistakes

    $400.00

    $600.00

    $/MWh

    $

    $200.00

    5,000.00 10,000.00 15,000.00 20,000.00 25,000.00

    Megawatts/Hour

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    Ec onom ic t heor assures us that a l l

    o f t hese b idders are

    m ak ing a ser ious$1,000.00

    DayAheadSupplyCurveFor2/1/20098:00A.M.mis take

    Here is the same chart usinglogs

    $100.00

    ou can see t e two c usters reasonable bids below$100/MWh, doubtful bids in the

    $200-$300MWh range, andim robable bids above $300/MWh

    $1.00

    $10.00

    5,000.00 10,000.00 15,000.00 20,000.00 25,000.00

    $/MWh

    $0.01

    $0.10

    Megawatts/Hour

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    What about

    m i t i ga t i on?

    From the current NYISO state ofthe market report:

    In certain constrained areas, mostof which are in the New York City

    area, some suppliers have

    resources are needed to managecongestion or satisfy local

    reliability requirements. In thesecases, however, the market ower

    mitigation measureseffectively limit their ability toexercise market power.

    2008 SOM, page vii

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    s t s w or ng e answer appears to e no

    Since noneconomic bids are so pervasive, it is unlikely that the rulesdescribed by the ISO are mitigating 10% or more of total bids

    Readin between the lines, it a ears that a lication of themitigation rules appears to be largely directed at New York City

    In September, the ISO filed an emergency motion attempting totighten up mitigation rules in NYC, citing non-economic bids

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    I f w e are so sm art

    unders t and t hesebids?