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

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  • Joskow, Paul L.

Abstract

This paper provides a comprehensive discussion of the causes and consequences ofstate and federal initiatives to introduce wholesale and retail competition into the U.S.electricity sector between 1995 and the present. Information about the developmentof wholesale market institutions, the expansion of wholesale power trade, theperformance of wholesale market institutions, the entry of merchant generatingcapacity, and the financial collapse of the trading and merchant generating sector ispresented and discussed. Issues regarding the ability of evolving spot wholesaleenergy market institutions and market power mitigation mechanisms to provideadequate incentives for investment in new generating capacity in the absence of someform of peak capacity obligation are discussed theoretically and evaluatedempirically. The diffusion of retail competition and the performance of retailcompetition programs in eight states is examined empirically. Imperfections intransmission governance arrangements and barriers to efficient expansion of thetransmission network are identified. The analysis leads to the overall conclusion thatthe development of efficient competitive wholesale and retail electricity marketscontinues to be a work in progress and faces many technical, institutional and politicalchallenges in the U.S. Suggestions for successfully confronting, or at least betterunderstanding, these challenges are presented.

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Bibliographic Info

Paper provided by Regulation2point0 in its series Working paper with number 207.

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Date of creation: Jul 2003
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Handle: RePEc:reg:wpaper:207

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  1. 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.
  2. Joskow, Paul L, 1974. "Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation," Journal of Law and Economics, University of Chicago Press, vol. 17(2), pages 291-327, October.
  3. Paul Joskow & Jean Tirole, 2005. "Merchant Transmission Investment," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 233-264, 06.
  4. Paul L. Joskow, 2001. "California's Electricity Crisis," Oxford Review of Economic Policy, Oxford University Press, vol. 17(3), pages 365-388.
  5. 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.
  6. Holmstrom, Bengt & Tirole, Jean, 2000. "Liquidity and Risk Management," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 295-319, August.
  7. Green, Richard & Newbery, David M G, 1991. "Competition in the British Electricity Spot Market," CEPR Discussion Papers 557, C.E.P.R. Discussion Papers.
  8. 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.
  9. 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.
  10. 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.
  11. Green, Richard, 2000. "Can Competition Replace Regulation for Small Utility Customers?," CEPR Discussion Papers 2406, C.E.P.R. Discussion Papers.
  12. Paul L. Joskow, 1997. "Restructuring, Competition and Regulatory Reform in the U.S. Electricity Sector," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 119-138, Summer.
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