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Market power monitoring and mitigation in the US wholesale power markets

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  • Helman, Udi

Abstract

Under current statutory requirements, the Federal Energy Regulatory Commission (FERC) must ensure that prices in US wholesale power markets are ‘just and reasonable’. This has been interpreted by the agency and the courts as requiring the monitoring and mitigation of undue market power. This paper focuses on generation market power. Prior to electricity sector restructuring, wholesale bilateral power trading took place among vertically integrated monopoly utilities trading at the margin or between small independent producers and the utilities. Under those conditions, the authorization of trading at market prices, called ‘market-based rates’, required only that the generation supplier pass a simple market share screen for market power. As restructuring unfolded, and market conditions changed, there has been a steady evolution in FERC's market power mitigation rules, encompassing (a) changes in the market power assessment required for granting market-based rates and related methods for merger approval, and (b) development and refinement of new techniques for screening and mitigating offers into the organized day-ahead and real-time markets operated by Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs). This paper reviews these changes to date, as FERC continues to clarify its approved rules and procedures. It also examines recent methods for quantitative market power analysis that could augment current procedures or supplant them, as found appropriate.

Suggested Citation

  • Helman, Udi, 2006. "Market power monitoring and mitigation in the US wholesale power markets," Energy, Elsevier, vol. 31(6), pages 877-904.
  • Handle: RePEc:eee:energy:v:31:y:2006:i:6:p:877-904
    DOI: 10.1016/j.energy.2005.05.011
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    2. Gianfreda, Angelica & Grossi, Luigi, 2012. "Forecasting Italian electricity zonal prices with exogenous variables," Energy Economics, Elsevier, vol. 34(6), pages 2228-2239.
    3. Ciarreta, Aitor & Nasirov, Shahriyar & Silva, Carlos, 2016. "The development of market power in the Spanish power generation sector: Perspectives after market liberalization," Energy Policy, Elsevier, vol. 96(C), pages 700-710.
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    6. Asgari, Mohammad Hossein & Monsef, Hassan, 2010. "Market power analysis for the Iranian electricity market," Energy Policy, Elsevier, vol. 38(10), pages 5582-5599, October.
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    8. Bataille, Marc & Steinmetz, Alexander & Thorwarth, Susanne, 2014. "Screening instruments for monitoring market power in wholesale electricity markets: Lessons from applications in Germany," DICE Discussion Papers 150, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    9. Liu, Zhen & Zhang, Xiliang & Lieu, Jenny, 2010. "Design of the incentive mechanism in electricity auction market based on the signaling game theory," Energy, Elsevier, vol. 35(4), pages 1813-1819.
    10. Evgenii Monastyrenko, 2016. "Cross-Border M&As and Eco-Environmental Performance of European Energy Utilities," FIW Working Paper series 169, FIW.
    11. Shafie-khah, Miadreza & Parsa Moghaddam, Mohsen & Sheikh-El-Eslami, Mohamad Kazem & Rahmani-Andebili, Mehdi, 2012. "Modeling of interactions between market regulations and behavior of plug-in electric vehicle aggregators in a virtual power market environment," Energy, Elsevier, vol. 40(1), pages 139-150.
    12. Shawhan, Daniel L. & Messer, Kent D. & Schulze, William D. & Schuler, Richard E., 2011. "An experimental test of automatic mitigation of wholesale electricity prices," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 46-53, January.

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