Report to the California Trust For Power Industry Restructuring ACTIVITY RULES FOR THE POWER EXCHANGE

In this condensation of my February 3 and 21 reports I summarize the proposed activity rules for the PX and their motivation. The key rule is based on the principle of revealed preference: a bidder’s refusal to improve a previous clearing price is presumptive evidence that it cannot do so profitably. This principle is represented here by the Exclusion Rule, which “freezes” an offer that fails to improve the previous clearing price. When other routine procedural rules are included, the resulting activity rules perform well in experimental tests, as described in the March 3 reports by Charles Plott and me. A full set of activity rules is set forth in Appendix A, which constitutes my present recommendation.