Lessons from the first year of competition in the California electricity markets

Situated at the western edge of the continent and the eastern rim of the Pacific, California has always possessed allure as a place of frontiers. California's developing competitive electricity markets represent another frontier that has attracted widespread interest. At the first birthday of these markets, it seems appropriate to review their current state of development, even though they are surely in a transitional state. The authors do not undertake to make a comprehensive assessment of the efficiency of these markets, given their evolving nature. Rather, in reviewing one year of data, their goal is to examine the economic and technical relationships between the various power markets arising under the California Power Exchange (PX) and the California Independent System Operator (ISO). The analysis also considers the decision faced by generators selling into both the PX and ancillary service markets, identifying those areas where there may be losses in both efficiency and profits