Benefit of counsel: Standard Mark Design - Snake oil or a silver bullet?

摘要

Last month, we discussed the Federal Energy Regulatory Commission (FERC) staff's initial response to Enron's trading strategies. Another issue is how markets can be reformed to discourage those strategies which took advantage of flaws existing in the California power market. Appendix E to FERC's July 31, 2002 Notice of Proposed Rulemaking (NOPR) for its Standard Market Design (SMD) explains how SMD should accomplish that purpose. Many of Enron's trading strategies exploited flaws in the California power market, such as the fact that California's day ahead schedule was not financially binding and did not need to be physically feasible in real time. The California Power Exchange (PX) administered the day ahead market, while the real time balancing market was separately administered by the California Independent System Operator (ISO). There were discrete settlement systems for energy and congestion charges, and there was little information exchange between the PX and the ISO. These design flaws created incentives to initiate artificial congestion in the day ahead schedule and receive payment for illusory congestion relief in real time.