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Looking for Trouble: Competition Policy in the U.S. Electricity Industry


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  • Bushnell, James


In the aftermath of the California energy crisis, there has been a shift in the focus of electricity regulators away from the fostering of a competitive market structure and towards the application of regulations to specific market outcomes. Such a focus stands in marked contrast to the general principles governing competition policies in other industries. This shift is in part influenced by the clear failure of earlier attempts to establish a competitive market structure in California. But was this a failure of the policy, or of the tools that were used to implement it? In this chapter, I describe the tests historically used by regulators as screens for the potential abuse of market power by suppliers. More advanced methods, such as models of oligopoly competition, can potentially provide a much better understanding of the competitive outlook for a market. However, much uncertainty surrounds the development and application of such models. I apply an oligopoly model of the California market to actual market data to test the ability of such models to recreate true market outcomes. I also explore the potential impact of an alternative plan for the divestiture of California's thermal generation units. The results indicate that a more substantial, but still plausible, reduction in supplier concentration would have saved consumers nearly $2 billion during the summer of 2000.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 13140.

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Date of creation: 01 Jan 2005
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Handle: RePEc:isu:genres:13140

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Cited by:
  1. Geoff Bertram & Dan Twaddle, 2005. "Price-Cost Margins and Profit Rates in New Zealand Electricity Distribution Networks Since 1994: the Cost of Light Handed Regulation," Journal of Regulatory Economics, Springer, Springer, vol. 27(3), pages 281-308, 01.
  2. Bushnell, James, 2007. "Oligopoly Equilibria in Electricity Contract Markets," Staff General Research Papers, Iowa State University, Department of Economics 13135, Iowa State University, Department of Economics.
  3. Barquin, J. & Boots,M. G. & Ehrenmann, A. & Hobbs, B.F. & Neuhoff, K. & Rijkers, F. A. M., 2004. "Network-constrained models of liberalized electricity markets: the devil is in the details," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0405, Faculty of Economics, University of Cambridge.
  4. Pittman, Russell, 2007. "Restructuring the Russian electricity sector: Re-creating California?," Energy Policy, Elsevier, Elsevier, vol. 35(3), pages 1872-1883, March.


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