If Pay-as-bid auctions are not a solution for California, then Why not a reliability market?

Abstract

This document presents some ideas regarding the use of the pay-as-bid pricing rule in multi-unit auctions. In particular, we focus on electricity markets and on the proposals for adopting this kind of mechanism in the California Power Exchange. We find that the pay-as-bid auction has important drawbacks. Instead, we attack the recent problems in California from another point of view and propose an alternative solution.