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The Difficult Transition to Competitive Electricity Markets in the U.S

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Author Info
Paul L. Joskow

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Abstract

This paper provides a comprehensive discussion of the causes and consequences of state and federal initiatives to introduce wholesale and retail competition into the U.S. electricity sector between 1995 and the present. Information about the development of wholesale market institutions, the expansion of wholesale power trade, the performance of wholesale market institutions, the entry of merchant generating capacity, and the financial collapse of the trading and merchant generating sector is presented and discussed. Issues regarding the ability of evolving spot wholesale energy market institutions and market power mitigation mechanisms to provide adequate incentives for investment in new generating capacity in the absence of some form of peak capacity obligation are discussed theoretically and evaluated empirically. The diffusion of retail competition and the performance of retail competition programs in eight states is examined empirically. Imperfections in transmission governance arrangements and barriers to efficient expansion of the transmission network are identified. The analysis leads to the overall conclusion that the development of efficient competitive wholesale and retail electricity markets continues to be a work in progress and faces many technical, institutional and political challenges in the U.S. Suggestions for successfully confronting, or at least better understanding, these challenges are presented.

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Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0308.

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Date of creation: May 2003
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Handle: RePEc:mee:wpaper:0308

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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. Holmstrom, Bengt & Tirole, Jean, 2000. "Liquidity and Risk Management," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 295-319, August.
  2. Paul L. Joskow, 2001. "California's Electricity Crisis," NBER Working Papers 8442, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December. [Downloadable!]
  4. Joskow, Paul L, 1997. "Restructuring, Competition and Regulatory Reform in the U.S. Electricity Sector," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 119-38, Summer. [Downloadable!] (restricted)
  5. Paul Joskow & Jean Tirole, 2003. "Merchant Transmission Investment," Working Papers 0304, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
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  6. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September. [Downloadable!] (restricted)
  7. Oren, Shmuel S. & Spiller, Pablo T. & Varaiya, Pravin & Wu, Felix, 1995. "Nodal prices and transmission rights: A critical appraisal," The Electricity Journal, Elsevier, vol. 8(3), pages 24-35, April. [Downloadable!] (restricted)
  8. Joskow, Paul L & Tirole, Jean, 1999. "Transmission Rights and Market Power on Electric Power Networks I: Financial Rights," CEPR Discussion Papers 2093, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. P. Joskow, 1974. "Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation," Working papers 128, Massachusetts Institute of Technology (MIT), Department of Economics.
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  10. Green, Richard & Newbery, David M G, 1991. "Competition in the British Electricity Spot Market," CEPR Discussion Papers 557, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Paul L. Joskow, 2003. "Electricity Sector Restructuring And Competition - Lessons Learned," Working Papers 0314, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
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  12. Green, Richard, 2000. "Can Competition Replace Regulation for Small Utility Customers?," CEPR Discussion Papers 2406, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Monica Giulietti & Catherine Waddams Price & Michael Waterson, 2005. "Consumer Choice and Competition Policy: a Study of UK Energy Markets," Economic Journal, Royal Economic Society, vol. 115(506), pages 949-968, October. [Downloadable!] (restricted)
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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. Paul Joskow, 2003. "Electricity Sector Restructuring and Competition: Lessons Learned," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 548-558. [Downloadable!]
    Other versions:
  2. Paul L. Joskow, 2006. "Competitive Electricity Markets And Investment In New Generating Capacity," Working Papers 0609, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
  3. Littlechild, S., 2005. "Competition and contracts in the Nordic Residential Electricity Markets," Cambridge Working Papers in Economics 0550, Faculty of Economics, University of Cambridge. [Downloadable!]
  4. James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2007. "Vertical Arrangements, Market Structure, and Competition An Analysis of Restructured U.S. Electricity Markets," NBER Working Papers 13507, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Brunekreeft, G. & McDaniel, T., 2005. "Policy uncertainty and supply adaquacy in electric power markets," Discussion Paper 06, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
  6. Twomey, P. & Green, R. & Neuhoff, K. & Newbery, D., 2005. "A Review of the Monitoring of Market Power The Possible Roles of TSOs in Monitoring for Market Power Issues in Congested Transmission Systems," Cambridge Working Papers in Economics 0504, Faculty of Economics, University of Cambridge. [Downloadable!]
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  7. Paul L. Joskow, 2004. "Transmission Policy in the United States," Working Papers 0417, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
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  8. Kwoka, J. & Pollitt, M., 2007. "Industry Restructuring, Mergers, And Efficiency: Evidence From Electric Power," Cambridge Working Papers in Economics 0725, Faculty of Economics, University of Cambridge. [Downloadable!]
  9. Tooraj Jamasb & Michael Pollitt, 2005. "Electricity Market Reform in the European Union - Review of Progress toward Liberalization & Integration," Working Papers 0503, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
    Other versions:
  10. Machiel Mulder & Victoria Shestalova & Marc Lijesen, 2005. "Vertical separation of the energy-distribution industry," CPB Documents 84, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  11. 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)
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  12. Paul L. Joskow, 2005. "Markets For Power In The United States - An Interim Assessment," Working Papers 0512, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
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  13. Glachant, J-M. & Finon, D., 2005. "A Competitive Fringe in the Shadow of a State Owned Incumbent: The Case of France," Cambridge Working Papers in Economics 0524, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  14. Brunekreeft, G., 2003. "Market-based Investment in Electricity Transmission Networks: Controllable Flow," Cambridge Working Papers in Economics 0340, Faculty of Economics, University of Cambridge. [Downloadable!]
  15. Mota, R.L., 2004. "‘Comparing Brazil and USA electricity performance; what was the impact of privatisation?’," Cambridge Working Papers in Economics 0423, Faculty of Economics, University of Cambridge. [Downloadable!]
  16. Roques, F.A. & Savva , N.S., 2006. "Price Cap Regulation and Investment Incentives under Demand Uncertainty," Cambridge Working Papers in Economics 0636, Faculty of Economics, University of Cambridge. [Downloadable!]
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