The US General Accounting Office said a Federal Energy Regulatory Commission study of generator market power in California was insufficient to support a conclusion that electric generators did not exercise market power.
The GAO also said two other studies that did conclude there was market power abuse could not determine the “extent” to which market power caused high electricity prices.
In a report released Friday, GAO said power plants could have deliberately withheld production to influence prices even though real physical problems existed at the plants.
Reps. Jay Inslee (D-Wash.) and Peter DeFazio (D-Ore.) asked GAO to evaluate FERC’s study and two other studies because they were concerned market power was being used by generators to drive up electricity prices in California.
FERC’s Feb. 1 study “Report on Plant Outages in the State of California” concluded an abnormally high outage rate of California power plants could be explained for engineering reasons. FERC said market power did not account for the outages and, consequently, the high prices.
Two other studies argued generators exercised market power by withholding capacity when supplies were tight to drive up prices. Further, they concluded generators staged outages to drive up prices, pointing to the higher than normal outage rate.
An August 2000 study “Diagnosing Market Power in California’s Restructured Wholesale Electricity Market” by three economists from Stanford University, the University of California at Berkeley, and the University of California Energy Institute concluded there was evidence market power contributed to higher prices of electricity in California in 1998 and 1999.
Likewise, a January 2000 study, “A Quantitative Analysis of Pricing Behavior in California’s Wholesale Electricity Market During Summer 2000,” by economists from the Massachusetts Institute of Technology and Analysis Group/Economics, a private consulting firm, reached similar conclusions.
GAO examined all three studies to see how the methodologies and results of the three studies compared and to determine if the FERC study was thorough enough to support its conclusions.
“FERC’s study was not thorough enough to support its overall conclusion that audited companies were not physically withholding electricity supply to influence prices,” according to GAO’s report. “It is practically impossible to accurately determine whether such physical outages are legitimate or not because plants run frequently with physical problems.”
GAO also said the timing of maintenance or repairs is often a judgment call on the part of plant owners. Looking at outages and maintenance records is not sufficient to evaluate market power, GAO said. FERC did not look at other methods of influencing prices such as not offering bids to sell capacity or bidding a price so high it guaranteed the power would be excluded from the market.
It is not possible to tell the difference between an unavoidable outage and a strategic outage designed to drive up prices, the congressional watchdog said.
GAO concluded none of the studies evaluated all the factors that could have led to an abnormally high level of outages. The studies’ results were inconclusive with regard to the extent market power caused the observed high prices, it said. GAO left open for further investigation the market power issue.