Post on 07-Oct-2020
To benefit the WA community by promoting an efficient and customer focused economy 1
Bruce Layman
Chief Economist
Economic Regulation Authority
To benefit the WA community by promoting an efficient and customer focused economy 2
WEM Market Rule 7A.2.17
a Market Participant must not, for any Trading Interval, offer
prices in its Balancing Submission in excess of the Market
Participant’s reasonable expectation of the short run
marginal cost of generating the relevant electricity by the
Balancing Facility, when such behaviour relates to market
power.
To benefit the WA community by promoting an efficient and customer focused economy 3
Market Power Mitigation in the WEM
• Consumer and Competition Law
• Electricity Market Regulation – Why?
• US Experience
• Market Rule 7A.2.17
• Proposed Changes
To benefit the WA community by promoting an efficient and customer focused economy 4
Competition and Consumer Act (2010)
• s46: Misuse of Market Power
• s50: Mergers
To benefit the WA community by promoting an efficient and customer focused economy 5
Differences
• CCA 2010
• Protecting competition
• Electricity Markets
• Reduce participants using market power –e.g. withholding
To benefit the WA community by promoting an efficient and customer focused economy 6
Competition and Consumer Act
• Substantial Market Power
• Ability to price without constraint from
competition
To benefit the WA community by promoting an efficient and customer focused economy 7
Competition and Consumer Act
• Substantial Market Power
• Not transient
• Potential competition/ new entrants relevant
• Two years [AGL v ACCC]
• LRMC
To benefit the WA community by promoting an efficient and customer focused economy 8
S46: Competition and Consumer Act (2010)
• Take Advantage of
• Whether a “profit maximising firm operating in a workably competitive market could in a commercial sense profitably engage in the behaviour” [ACCC v Cement Australia Pty Ltd ]
• Effects Test
To benefit the WA community by promoting an efficient and customer focused economy 9
Electricity Markets
• Inelastic Demand
• Demand = Supply – always
• Short-term damage substantial
with long-term implications
0
50
100
150
200
250
300
350
Jan
-00
Feb
-00
Mar
-00
Ap
r-0
0
May
-00
Jun
-00
Jul-
00
Au
g-0
0
Sep
-00
Oct
-00
No
v-0
0
Dec
-00
Jan
-01
Feb
-01
Mar
-01
Ap
r-0
1
May
-01
Jun
-01
Jul-
01
Au
g-0
1
Sep
-01
Oct
-01
No
v-0
1
Dec
-01
USD
/ M
wh
To benefit the WA community by promoting an efficient and customer focused economy 10
California Electricity Prices
17 Months
To benefit the WA community by promoting an efficient and customer focused economy 11
Electricity Markets
• Inelastic Demand
• Demand = Supply
• Short-term damage substantial
• Capacity markets
To benefit the WA community by promoting an efficient and customer focused economy 12
North America
• Structural (e.g. PJM)
• Conduct and Impact (e.g. MISO, NYISO)
To benefit the WA community by promoting an efficient and customer focused economy 13
WEM Market Rule 7A.2.17a Market Participant must not, for any Trading Interval, offer prices in its Balancing Submission in excess of the Market Participant’s reasonable expectation of the short run marginal cost of generating the relevant electricity by the Balancing Facility, when such behaviour relates to market power.
To benefit the WA community by promoting an efficient and customer focused economy 14
Rule 7A.2.17 Interpretation
• CCA 2010
• Interpretation Act (WA)
• Market Objectives
To benefit the WA community by promoting an efficient and customer focused economy 15
WEM Objectives• Economic efficiency, safe and reliable
electricity production
• Encourage competition
• Avoid discrimination between technologies
• Minimise long-term cost to customers
• Encourage energy efficiency
To benefit the WA community by promoting an efficient and customer focused economy 16
WEM Objectives• Economic efficiency, safe and reliable
electricity production
• Encourage competition
• Avoid discrimination between technologies
• Minimise long-term cost to customers
• Encourage energy efficiency
To benefit the WA community by promoting an efficient and customer focused economy 17
WEM Market Rule 7A.2.17a Market Participant must not, for any Trading Interval, offer prices in its Balancing Submission in excess of the Market Participant’s reasonable expectation of the short run marginal cost of generating the relevant electricity by the Balancing Facility, when such behaviour relates to market power.
To benefit the WA community by promoting an efficient and customer focused economy 18
Market Power• No “Substantial”
• Rule capable of being applied to any Trading Interval
• Refers to SRMC
• Rule can’t be toothless
• Other capacity markets
i.e. Short-term/transient covered
To benefit the WA community by promoting an efficient and customer focused economy 19
WEM Market Rule 7A.2.17a Market Participant must not, for any Trading Interval, offer prices in its Balancing Submission in excess of the Market Participant’s reasonable expectation of the short run marginal cost of generating the relevant electricity by the Balancing Facility, when such behaviour relates to market power.
40.00
50.00
60.00
70.00
80.00
90.00
100.00
110.00
0 30 60 90
Marginal Cost Average Cost
$ / MWh
To benefit the WA community by promoting an efficient and customer focused economy 20
Short-run Marginal Cost: Economics Textbook
40.00
45.00
50.00
55.00
60.00
65.00
70.00
75.00
0 30 60 90
Marginal Cost Average Cost
$/MWh
To benefit the WA community by promoting an efficient and customer focused economy 21
Short-run Marginal Cost: Electricity Generation
To benefit the WA community by promoting an efficient and customer focused economy 22
Short-run Marginal Cost
• SRMC ~ AVC; or
• P > SRMC may not relate to
market power
To benefit the WA community by promoting an efficient and customer focused economy 23
WEM Market Rule 7A.2.17a Market Participant must not, for any Trading Interval, offer prices in its Balancing Submission in excess of the Market Participant’s reasonable expectation of the short run marginal cost of generating the relevant electricity by the Balancing Facility, when such behaviour relates to market power.
To benefit the WA community by promoting an efficient and customer focused economy 24
Capacity Market
• Proposed steep demand curve
To benefit the WA community by promoting an efficient and customer focused economy 25
Questions / comments?