Market regulators are encouraged to be Agents of Change as markets are dynamic; hence, regulation must adapt while static policy is doomed to fail.

ADICA is an industry leader in providing Smart Market^® services, including business solutions and decision support for energy companies and government agencies worldwide.  Our innovative software products, developed in collaboration with Argonne National Laboratory, provide unique and valuable insights that enable our clients to succeed in competitive energy markets.  

1. Market Design and Development:  EMCAS provides unique and valuable insights to help market regulators develop effective electricity markets. Market regulators and system operators can utilize EMCAS to test the impact that different regulatory structures and market rules (e.g., price setting mechanisms, tariff rules, settlement options) would have on the various market participants and the market as a whole.

Market rules can be tested for vulnerabilities to system shocks and price spikes caused by systemic problems (lack of capacity or inadequate transmission grid), random events (low hydrology, component outages, load variations), or market gaming by participants who are in a position to exploit a set of market rules to their advantage.
 
2. Market Power:  Generation companies can grow quickly in their market dominance and use their position to exert price pressure and improve their financial performance. However, market power may arise in less obvious but equally consequential situations where smaller, less-dominant, generation owners happen to have a locational advantage and are able to exploit the unique characteristics and physical limitations of the transmission grid (load pocket) or weaknesses in market rules by developing bidding strategies that successfully drive up prices beyond competitive levels in that particular part of the grid. In this case, both the intensity and the frequency of the location-specific load pocket or transmission bottleneck are crucial. A large price spike may be of less concern if it occurs only during a few hours per year, whereas a moderate price spike may have much larger impacts if it can be sustained for a sizeable number of hours per year. This type of situation can be captured in a model such as EMCAS that reflects the transmission grid in detail, simulates the market operation chronologically on an hourly basis, and allows agents to learn from previous experiences and adapt their behavior and bidding to new situations.

3. Price Volatility Analysis:  Given the unique characteristic of electricity, power markets are subject to levels of price volatility not typically seen in other commodity markets. EMCAS enables energy market regulators to identify and understand the fundamental drivers of this volatility and quantify the extent of volatility in order to limit or eliminate the exposure of consumers to potentially substantial price spikes.

As an example, the Illinois Commerce Commission (ICC) funded a study using EMCAS to examined whether the transmission system in Illinois and the surrounding region could accommodate competition by allowing the cheapest power to be brought to where it was needed to meet loads or whether, conversely, generators would be able to exercise market power. The EMCAS study for Illinois takes into account a variety of potential strategies (e.g., physical and economic withholding) and a host of aspects that drive the ability to successfully exert strategic behavior, including temporal (ability to influence prices may be limited to certain hours), spatial (not all busses may be susceptible to strategic behavior), and technological (not all types of generators equally lend themselves to gaming). 

Visit the ADICA website to download a copy of the ICC study report or request an evaluation copy of the EMCAS software.