Lessons learned from California market

Summary form only given. In April of 1998, wholesale electricity in California was deregulated, and spot markets created in the power exchange (PX) and the Independent System Operator (ISO) included the day-ahead energy and ancillary service markets, the hour-ahead energy and ancillary service markets, and the real-time energy market. Sellers could bid their energy, four types of ancillary services, and incremental and decremental energy for congestion separately for each day-ahead and hour-ahead market sequentially, and then could bid their remaining energy to the ISO real-time energy market. At same time, the physical aspects of the electricity system and resource feasibilities were frequently ignored. The energy crisis in 2000 and 2001 demonstrated that this sequential and separable market structure was fundamentally flawed. In the light of the market failure in California and FERC standard market design, the California ISO started market redesign activities, including the development of its market design proposal, MD02, and an extensive stakeholders' process. This presentation will provide a summary of the problems that existed and the lessons learned, and indications of how the ISO addressed the issues of market failures in the 2000 - 2001 energy crisis.