As U.S. FERC Chairman Joseph Kelliher noted at the World Forum on Energy Regulation III, 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 a worldwide provider of cutting-edge analysis software that enables our clients to succeed in evolving energy markets. We specialize in the application of innovative Agent-Based Modeling software developed in collaboration with Argonne National Laboratory.

Our Electricity Market Complex Adaptive System (EMCAS) software is designed to meet the growing need for advanced modeling approaches that simulate how electricity markets may evolve over time and how participants in these markets react to the changing physical, economic, financial, and regulatory environments in which they operate. Deloitte Consulting recently conducted a survey of commercially available software for electricity market simulation for a consortium comprised of a system operator, regulator, transmission company, and Ministry in the European Union. After a detailed review, the consortium requested demonstrations of four "best-of-class" solutions, and then selected EMCAS as the top pick for their Strategic Regional Electricity Model. The EMCAS software redefines what is best-of-class technology for analyzing electricity market issues, such as:

1. Market Design and Development:  EMCAS provides unique and valuable insights for the development of effective electricity markets. Regulatory agencies 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. This type of analysis is particularly useful in the early stages of developing a new market design or when there is a need to explore alternative structures for an already existing market.
 
2. Market Monitoring and Market Power:  As today’s power markets tend to be highly dynamic with rapid and far-reaching changes such as transfers of ownership of existing generating assets and new market entrants quickly altering the playing field, regulators and system operators need to be in a position to monitor these ongoing changes and understand the near- and long-term implications for market performance and system reliability. Part of this oversight is an ongoing assessment of the potential for market power exercised by the different generation owners. EMCAS is specifically designed to assist in these market monitoring functions.

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 only 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 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.