PWP-036 Market Power in California Electricity Markets

As the electricity industry in California undergoes a process of fundamental restructuring, important new products and markets will be created while others will lose signi cance. In this paper, we make an initial survey of the products and markets that will be prominent in the emerging new electricity industry. We describe approaches to analyzing the prospects for, and the impacts of, market power abuse in these various product markets. The key product markets that are discussed include the market for spot electrical energy, markets for pool-based and physical power contracts, and markets for reliability services such as load balancing and spinning reserve. Structural measures of market power, such as the HirschmanHer ndahl Index (HHI), have certain general shortcomings that are exacerbated when applied to restructured electricity markets. Fortunately, the direct estimation of competitive equilibria, such as a Cournot oligopoly equilibrium, appears to be more feasible for this industry than is generally the case. The authors would like to thank Carl Blumstein and Bart McGuire for helpful comments and discussions. This research was partially funded by the California Energy Commision under contract #700-93-003, amendment 2.