A Regional Approach to Market Monitoring in the West

Market monitoring involves the systematic analysis of prices and behavior in wholesale power markets to determine when and whether potentially anti-competitive behavior is occurring. Regional Transmission Organizations (RTOs) typically have a market monitoring function. Because the West does not have active RTOs outside of California, it does not have the market monitoring that RTOs have. In addition, because the West outside of California does not have RTOs that perform centralized unit commitment and dispatch, the rich data that are typically available to market monitors in RTO markets are not available in the West outside of California. This paper examines the feasibility of market monitoring in the West outside of California given readily available data. We develop simple econometric models of wholesale power prices in the West that might be used for market monitoring. In addition, we examine whether production cost simulations that have been developed for long-run planning might be useful for market monitoring. We find that simple econometric models go a long ways towards explaining wholesale power prices in the West and might be used to identify potentially anomalous prices. In contrast, we find that the simulated prices from a specific set of production cost simulations exhibit characteristics that are sufficiently different from observed prices that we question their usefulness for explaining price formation in the West and hence their usefulness as a market monitoring tool