bruce layman chief economist economic regulation authority · bruce layman chief economist economic...
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To benefit the WA community by promoting an efficient and customer focused economy 1
Bruce Layman
Chief Economist
Economic Regulation Authority
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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.
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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
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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
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Differences
• CCA 2010
• Protecting competition
• Electricity Markets
• Reduce participants using market power –e.g. withholding
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Competition and Consumer Act
• Substantial Market Power
• Ability to price without constraint from
competition
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Competition and Consumer Act
• Substantial Market Power
• Not transient
• Potential competition/ new entrants relevant
• Two years [AGL v ACCC]
• LRMC
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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
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Electricity Markets
• Inelastic Demand
• Demand = Supply – always
• Short-term damage substantial
with long-term implications
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0
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Feb
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USD
/ M
wh
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California Electricity Prices
17 Months
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Electricity Markets
• Inelastic Demand
• Demand = Supply
• Short-term damage substantial
• Capacity markets
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North America
• Structural (e.g. PJM)
• Conduct and Impact (e.g. MISO, NYISO)
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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.
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Rule 7A.2.17 Interpretation
• CCA 2010
• Interpretation Act (WA)
• Market Objectives
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WEM Objectives• Economic efficiency, safe and reliable
electricity production
• Encourage competition
• Avoid discrimination between technologies
• Minimise long-term cost to customers
• Encourage energy efficiency
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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
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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.
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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
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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.
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40.00
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100.00
110.00
0 30 60 90
Marginal Cost Average Cost
$ / MWh
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Short-run Marginal Cost: Economics Textbook
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40.00
45.00
50.00
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60.00
65.00
70.00
75.00
0 30 60 90
Marginal Cost Average Cost
$/MWh
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Short-run Marginal Cost: Electricity Generation
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Short-run Marginal Cost
• SRMC ~ AVC; or
• P > SRMC may not relate to
market power
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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.
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Capacity Market
• Proposed steep demand curve
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Questions / comments?