Restructured Electricity Markets: California Market Design Enabled Exercise of Market Power

Jim Wells

Feb 2002 · DIANE Publishing

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California (CA) is part of a broader western market, and electricity is routinely bought and sold across state and nat. boundaries. CA's electricity industry began operating in a restructured market in April 1998. For 2 years, the state had relatively low wholesale electricity prices, but beginning in May 200, however, wholesale prices rose dramatically in California and stayed relatively high for about a year. This report determines: (1) whether wholesale suppliers of electricity exercised market power by raising prices above competitive levels after restructuring, and if so, (2) what role, if any, the design of California's market played in facilitating the suppliers' ability to exercise market power. This analysis is focused on the late summer and early fall of 2000. Charts and tables.