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2009 State of the Market Report

Competitive Assessment

supplemental reserves exceeded reference levels by more than $10 per MW. Lastly, there were only two instances of ASM mitigation in 2009. Given the relatively small share of the total capability represented by these offers and the fact that some resources naturally have higher perceived costs or risks associated with selling ancillary services, we conclude that the offers in the ASM in 2009 were competitive.

3.

Physical Withholding

While the prior analyses assessed offer patterns to identify potential economic withholding, the next analyses seek to identify potential physical withholding. Physical withholding occurs when a unit that would be economic at the market price is unavailable to produce some or all of its output due to a non-economic parameter or condition. For instance, this may be accomplished by the supplier unjustifiably claiming an outage or derating the resource. Although we analyze broad patterns in outages and deratings for this report, we also monitor for potential physical withholding on a day-to-day basis and audit outages and deratings when they have a substantial affect on market outcomes.

Figure 82 through Figure 85 show average share of capacity unavailable to the market in 2009 due to forced outages and deratings in each of the four regions of the Midwest ISO. Like the output gap analysis above, this conduct may be justifiable or may represent physical withholding. Therefore, we evaluate the conduct relative to load levels and participant size to detect patterns consistent with potential withholding. Attempts to withhold would likely occur more often at high-load levels when prices are most sensitive to withholding. We also focus particularly on short-term outages and partial deratings because long-term forced outages are less likely to be a profitable withholding strategy. This is because taking a long-term forced outage of an economic unit would cause the supplier to forego profits on the units during hours when the supplier does not have market power.

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