ExperimentalEconomicsinMISOmarkets.pptVIP

DRAFT Demand Response and Resource Adequacy in Midwest ISO Markets 24 September 2007   Objective: Resource Adequacy Plans are created to help Ensure reliability, and Promote investment (resource adequacy) Midwest ISO faces the opportunity to design the resource adequacy features of its market Understanding the costs and benefits of tradeoffs between capacity markets, forward contract cover and vigorous demand response is important for the design. Choosing an inappropriate design can have long lasting consequences (e.g., plants built in the wrong place of the wrong type can last a long time)   Methodology: Experimental Economics Midwest ISO has hired August Systems to conduct experimental research that examines alternative institutional scenarios (market design elements) that may be implemented to avoid supply shortages efficiently. The research should demonstrate to state regulators and other stakeholders that the market design is not likely to lead to reliability failures or unhedged exposure to price spikes.   Contractors: August Systems: Drs. Vernon Smith, Stephen Rassenti, Lynne Kiesling, Michael Giberson, Karel Nolles and Hugh Outhred and others. Vernon Smith (George Mason University) shared the Nobel Prize in Economic Sciences in 2002 for his contribution in laying the foundation for experimental economics research.   Data Analysis: the work requires the following activities: Design, program, and test of software to be used to conduct laboratory controlled, network-based experimental markets for the transfer of electrical power from producers to those who benefit by its purchase under the various scenarios and environmental conditions dictated by the experimental design. Hire cash-motivated human subjects to make decisions as wholesale energy suppliers and demanders who inject and withdraw power from a grid, competing through the experimental market process. Analyze data collected during the experiments for the purpose of comparing