Diagnosing Market Power in California's Restructured Wholesale Electricity Market / Severin Borenstein, James Bushnell, Frank Wolak.

Format:

Book

Author/Creator:

Borenstein, Severin.

Contributor:

National Bureau of Economic Research.

Bushnell, James.

Wolak, Frank.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7868.

NBER working paper series no. w7868

Language:

English

Subjects (All):

Electric industries.

Electric utilities.

Electric utilities--Rates.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Cambridge : National Bureau of Economic Research, 2000.

Summary:

Effective competition in wholesale electricity markets is a necessary feature of a successful electricity supply industry restructuring. We examine the degree of competition in the California wholesale electricity market during the period June 1998 to September 1999 by comparing the market prices with estimates of the prices that would have resulted if owners of instate fossil fuel generating facilities behaved as price takers. We find that there were significant departures from competitive pricing and that these departures are most pronounced during the highest demand periods, which tend to occur during the months of July through September. Through most of the winter and spring of 1999 there was little evidence of the exercise of market power. Overall, the exercise of market power raised the cost of power purchases by about 16% above the competitive level. Following the presentation of our methodology for computing the counterfactual price-taking market price, we describe why our calculation represents a lower bound on the extent of market power and why the observed market prices cannot by attributed to competitive peak-lead pricing.

Notes:

Print version record

September 2000.