News Digest

 

Transmission & ISOs

Policing the Markets

The California ISO offers a plan, but some fear that rules themselves are the problem.

The California ISO has filed a four-step draft plan to mitigate market power in California's wholesale power markets, providing a ready target for just about any industry player opposing police-type enforcement or just trying to re-design the market itself.

In particular, the ISO's plan raises the question: Is market monitoring best achieved through objective standards imposed before the fact, or by granting significant authority to regulators to review trading behavior after the fact and to impose fines and sanctions where fault is found.

The answer might be simple at first blush for a free-market economist, but think again. "Market power is much nimbler than it used to be," notes public power attorney and advocate Robert McDiarmid, representing the Northern California Power Agency. "Markets shift and redefine at a moment's notice, and many generators have the ability to track and swiftly react to those changes.

"It goes without saying," adds McDiarmid, "that in any market power analysis, market definition effectively drives the results."

McDiarmid is alluding to the problem of moving targets. No matter what the rules are, traders will find a way to get around them. In fact, fixed rules might be worse than no rules at all.