Pivotal Supplier Rebid and Suspected Physical Withholding
Aster Power owns 1,200 MW of gas and coal capacity in a 4,000 MW regional market. Demand is 3,000 MW. A 500 MW interconnector trips, leaving 3,500 MW available. Before the outage, Aster's two mid-merit units were bid at €45/MWh and dispatched 900 MW; after the outage, Aster rebids both units at €180/MWh. Its output falls to 700 MW while the clearing price rises from €60 to €175/MWh. The system operator's independent benchmark estimate of the competitive price after the outage is €90/MWh. Aster's fuel and variable O&M costs did not change; its audited short-run marginal cost is €50/MWh. One unit also declared a 3-hour forced outage starting 20 minutes after the rebid. The system operator's telemetry shows the unit drawing auxiliary power but no net output. The market monitor must decide whether to open a formal investigation.
1. Calculate Aster's residual supply index before and after the outage and explain its significance.
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Residual supply index = available capacity excluding the largest supplier's capacity divided by demand. Before the outage: (4,000 - 1,200) / 3,000 = 2,800 / 3,000 = 0.933. After the outage: (3,500 - 1,200) / 3,000 = 2,300 / 3,000 = 0.767.
An RSI below 1 means the largest supplier is pivotal: without Aster's capacity, the remaining supply cannot meet demand. Aster was already pivotal before the outage, but the outage increases its pivotal position and therefore its ability to influence price. RSI is not proof of abuse; it establishes ability and incentive. The monitor should combine RSI with conduct evidence, such as the size of the rebid relative to short-run marginal cost, the output reduction, and the timing of the declared outage.
2. Evaluate whether the rebid and output reduction are economic withholding, physical withholding, or legitimate scarcity pricing.
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The rebid from €45 to €180 is a 300% increase while audited short-run marginal cost is €50 and fuel costs are unchanged. Output falls by 200 MW exactly when the price rises to €175, far above the €90 competitive benchmark. The forced outage 20 minutes later, with telemetry showing auxiliary power but no net output, is a physical-withholding red flag. These facts justify a formal investigation, but they do not yet prove abuse.
High bids can be legitimate in scarcity: a pivotal generator may bid above short-run marginal cost to earn scarcity rent, and a genuine outage can raise prices. The key questions are whether the unit was actually available and whether the conduct was profitable. Profit before: 900×(60-50) = €9,000/h. Profit after: 700×(175-50) = €87,500/h. The gain is large and consistent with withholding. If the unit was available but declared out, that is physical withholding. If it was truly unavailable, the price effect may be legitimate. The monitor should verify outage records, maintenance logs, SCADA data, and whether the unit could have produced.
3. Recommend the investigation steps and identify the potential violations if the conduct is confirmed.
Read the worked answer
Open a formal investigation and issue preservation notices for bid curves, dispatch instructions, outage records, maintenance logs, SCADA and telemetry, communications, and trader bonuses. Interview traders and plant operators separately. Obtain an independent technical review of whether the unit was physically available during the declared outage. Compare Aster's bids with its own historical bids, peer bids, and short-run marginal cost. Run a profitability test and assess whether the conduct moved the clearing price and for how long.
Potential violations include economic withholding, physical withholding, false outage reporting, and market manipulation. If evidence shows the unit was available and the outage was declared to tighten supply, the monitor should refer the matter to the enforcement authority. If the evidence is ambiguous, the monitor should document the analysis, close with no action, and keep Aster under enhanced surveillance. Coordination with the regulator is important, but evidence should be secured before the subject is alerted.