Competitive Solution Method of Mitigation

1
Competitive Solution Method of Mitigation

• Application to the Texas Nodal Market
• David Hurlbut
• PUCT Market Oversight Division

2
Objectives

• Mitigate the effect of system-wide market power
• Mitigate the effect of hockey stick pricing
• Distinguish between legitimate scarcity pricing
  and opportunistic price gouging

3
Competitive Solution Method

• Competitive Sufficiency Test is applied to entire
  system, not to load or generation pockets
• Works with local market power mitigation
• If test fails,
• Offers on competitive constraints are capped at a
  scarcity proxy
• Offers on noncompetitive constraints are capped
  at the reference price or scarcity proxy,
  whichever is lower

4
Competitive Sufficiency Test

• Quantity test Offers are more than 105 of
  demand
• Pivotal supplier test No supplier is pivotal
• Offers are capped at a scarcity proxy when test
  fails

5
Situations and outcomes
6
Scarcity Proxy

• Price corresponding to 95 of the competitive
  portion of the offer stack, multiplied by 1.5
• Competitive portion excludes pivotal suppliers
  who account for more than 5 of total supply

7
Scarcity Proxy under CSM
8
Average ERCOT offer stack
Calculated from all hourly BES stacks in 1Q 2003
terminating above 900/MW
99.9 of stack not affected, paid more than offer
9
What If for June 2003
10
What If for June 2003

• 77 of the time, the cap would have been around
  450
• 86 of the time, there was no offer above what
  the scarcity proxy would have been mitigation
  would not have mitigated anything
• 93 of the time, less than 0.1 of the offered
  quantity would have been mitigated