Price Formation in Wholesale Electricity Markets
The primary role of a market price is to reflect equilibrium between supply and demand. In a well-functioning and competitive wholesale electricity market, the market price represents the cost per megawatt-hour to procure the next megawatt needed to balance the system. This common understanding of price formation in wholesale electricity markets can give the false impression that the establishment of prices in wholesale electricity markets differs from the process in other commodity markets. In fact, price formation in wholesale electricity markets is the same as price formation in other commodity markets with one primary difference – electricity must be delivered at the precise moment it is needed by consumers. Most of the complexity and many of the challenges associated with price formation in wholesale electricity markets derives from the current grid’s limited ability to store large quantities of electricity, as well as the high costs associated with supply failure. This panel will discuss two developments related to price formation in wholesale electricity markets. First, a representative from the Federal Energy Regulatory Commission (FERC) will discuss FERC’s investigation of price formation in wholesale electricity markets and the actions the Commission has taken to improve price formation. Second, a representative of the entities participating in the Western Energy Imbalance Market (EIM) will discuss the group’s recent request that the California ISO conduct a comprehensive review of price formation options for an Extended Day Ahead Market, including evaluations of fast-start pricing and scarcity or shortage pricing.
- Angela Amos, Senior Policy Advisor, Office of Energy Market Regulation-West, FERC
- Donald Tretheway, Senior Advisor, Market Design & Regulatory Policy, California ISO
- Mark Holman, Managing Director – Power, Powerex
- Eric Hildebrandt, Executive Director, Market Monitoring, California ISO
Additional information regarding the Spring 2020 CREPC-WIRAB Webinar Series is available HERE.