| > Quote again from the article, did you read it? Yes, I saw the "shock and awe" soundbytes too. I ignored them. They are irrelevant to the question of whether what is happening is good or whether it should be stopped. > Price offset gained was greater 1.5 million What does the scale have to do with any of this? > Key term here is 'maneuvers' I'm not interested in who used which loaded term. I am interested in the marginal incentives provided by these trades. Do they point in a direction that benefits society or in a direction that hurts society? > Their _intent is to ensure they are not signalling_. If their teams of Ph.Ds had figured out a way to avoid the signaling inherent in the price changes due to supply/demand swings, they wouldn't be wasting their time in a specialized energy firm. Instead, they would be making trillions of dollars by robbing blind every financial institution in the world. Here's what it looks like to me: The smart PhDs figured out that the energy firm was performing too little maintenance. The energy firm was not willing to employ them to learn this for itself but it was willing to bet against them. The PhDs won and the power company lost. Justice was not served: although it is good that the PhDs got paid for predicting a problem, it is bad that consumers wound up paying double for the problem. HOWEVER, marginal incentives were corrected. If the trend continues, the incentives will continue to be correct tomorrow, and hopefully the power company will wake up and start paying attention to the predictions so that it can head off problem before they occur. The hypothesis of capitalism is that these incentives to fix the actual physical transmission line problem are more important than the unjust costs conveyed to consumers. |
I think the key to this question is whether the price differential on the node at Northport was due to natural congestion in the market or virtual congestion caused by traders. Traders like DC energy can participate in day-ahead and real-time energy markets in addition to purchasing FTR deriviates. This is generally a good thing because the traders can compete to supply power in constrained areas. However, it is possible to make uneconomic bids in these markets, especially day-ahead markets, that cause congestion on the grid while only causing a small financial loss for the trader. If a trader can cause virtual congestion on a power line where they own an FTR derivative, then that perceived congestion can cause large price differentials, which causes the derivatives to pay out much more than the day-ahead market loss. And the payout scales with the amount of power on the line where they own a derivative. It appears that the geography bottlenecks in this area, so it's a safe bet that any power lines going through there are very high voltage and moving lots of MWs. In this kind of situation, the trader's virtual load or generation does not indicate an issue with the grid such as poor planning or lack of maintenance. It means that the day-ahead market did not accurately predict actual energy demand due to virtual transactions. If you're interested, here's a paper from a couple years ago with more information about this trading strategy and how RTOs/ISOs could prevent this type of manipulation: http://www.hks.harvard.edu/hepg/Papers/2012/Virtuals%20and%2...