Empirical evidence of strategic bidding in California ISO real-time market

Abstract

This study builds on previous studies by the California Independent System Operator Corporation's Department of Market Analysis ("DIVIA") indicating that prices in the California electricity markets have persisted at high levels indicative of significant exercise of market power in the California wholesale energy markets. This particular study examines bids by individual suppliers (both instate and importers) in the real-time imbalance energy market of the ISO in order to determine whether individual suppliers' behaviors were responsible for raising prices above competitive levels. Resolving that issue affirmatively, it then explains how suppliers successfully employed bidding strategies to insure high market clearing prices. The evidence described in this study thus provides a direct link between the observed pattern of prices and the bidding behavior of individual suppliers that produced those prices.