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The Trouble with Electricity Markets: Understanding California's Restructuring Disaster

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Author Info
Severin Borenstein

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Abstract

In June 2000, after two years of fairly smooth operation, California's deregulated wholesale electricity market began producing extremely high prices and threats of supply shortages. The upheaval demonstrated dramatically why most current electricity markets are extremely volatile: demand is difficult to forecast and exhibits virtually no price responsiveness, while supply faces strict production constraints and prohibitive storage costs. This structure leads to periods of surplus and of shortage, the latter exacerbated by sellers' ability to exercise market power. Electricity markets can function much more smoothly, however, if they are designed to support price-responsive demand and long-term wholesale contracts for electricity.

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Publisher Info
Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 16 (2002)
Issue (Month): 1 (Winter)
Pages: 191-211
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Handle: RePEc:aea:jecper:v:16:y:2002:i:1:p:191-211

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  1. Severin Borenstein, 1999. "Understanding Competitive Pricing and Market Power in Wholesale Electricity Markets," Competition Policy Center, Working Paper Series CPC99-008, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Koesrindartoto, Deddy & Sun, Junjie & Tesfatsion, Leigh S., 2005. "An Agent-Based Computational Laboratory for Testing the Economic Reliability of Wholesale Power Market Designs," Staff General Research Papers 12388, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  2. Elisabetta Iossa & Francesca Stroffolini, 2007. "Integration and Separation with Costly Demand Information," CSEF Working Papers 170, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
    Other versions:
  3. repec:mop:credwp:08.09.77 is not listed on IDEAS
  4. Simon Cowan, 2002. "Marginal Cost Pricing versus Insurance," Economics Series Working Papers 102, University of Oxford, Department of Economics. [Downloadable!]
  5. James Bushnell, 2007. "Oligopoly equilibria in electricity contract markets," Journal of Regulatory Economics, Springer, vol. 32(3), pages 225-245, December. [Downloadable!] (restricted)
  6. Garud Iyengar & Anuj Kumar, 2006. "An equilibrium model for matching impatient demand and patient supply over time," Quantitative Finance Papers cs/0612065, arXiv.org, revised Mar 2007. [Downloadable!]
  7. Erin T. Mansur, 2007. "Do Oligopolists Pollute Less? Evidence from a Restructured Electricity Market," NBER Working Papers 13511, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Reiss, Peter C. & White, Matthew W., 2003. "Demand and Pricing in Electricity Markets: Evidence from San Diego During California's Energy Crisis," Research Papers 1829, Stanford University, Graduate School of Business. [Downloadable!]
  9. Elisabetta Iossa & Francesca Stroffolini, 2008. "Vertical Integration and Costly Demand Information in Regulated Network Industries," CEDI Discussion Paper Series 08-03, Centre for Economic Development and Institutions(CEDI), Brunel University. [Downloadable!]
  10. Hoel, Michael, 2004. "Electricity prices in a mixed thermal and hydropower system," Memorandum 28/2004, Oslo University, Department of Economics. [Downloadable!]
  11. Koesrindartoto, Deddy P. & Tesfatsion, Leigh S., 2005. "Testing the Reliability of FERC's Wholesale Power Market Platform: An Agent-Based Computational Economics Approach," Staff General Research Papers 12326, Iowa State University, Department of Economics. [Downloadable!]
  12. McLeod, Ross, 2002. "Privatisation Failures in Indonesia," Departmental Working Papers 2002-06, Australian National University, Economics RSPAS. [Downloadable!]
  13. Lucia Parisio & Bruno Bosco, 2003. "Market Power and the Power Market: Multi-Unit Bidding and (In)Efficiency in Electricity Auctions," Asia-Pacific Financial Markets, Springer, vol. 10(4), pages 377-401, August. [Downloadable!] (restricted)
    Other versions:
  14. Robert L. Earle & Karl Schmedders & Tymon Tatur, 2002. "Price Caps and Uncertain Demands," Discussion Papers 1340, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  15. Steven J. Davis & Cheryl Grim & John Haltiwanger & Mary Streitwieser, 2008. "Electricity Pricing to U.S. Manufacturing Plants, 1963-2000," NBER Working Papers 13778, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  16. Donald N. Dewees, 2006. "Electricity Restructuring and Regulation in the Provinces: Ontario and Beyond," Working Papers tecipa-205, University of Toronto, Department of Economics. [Downloadable!]
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