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Measuring Market Inefficiencies in California's Deregulated Electricity Industry

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  • Borenstein, Severin
  • Bushnell, James
  • Wolak, Frank

Abstract

W e present a method for decomposing wholesale electricity payments into production costs, inframarginal competitive rents, and payments resulting from the exercise of market power. Using data from June 1998 to October 2000 in California, we find significant departures from competitive pricing during the high-demand summer months and near-competitive pricing during the lower-demand months of the previous two years. In summer 2000, wholesale electricity expenditures were $8.98 billion up from $2.04 billion in summer 1999. We find that 21 percent of this increase was due to production costs, 20 percent to competitive rents, and 59 percent to market power.

Suggested Citation

  • Borenstein, Severin & Bushnell, James & Wolak, Frank, 2002. "Measuring Market Inefficiencies in California's Deregulated Electricity Industry," Staff General Research Papers Archive 13136, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:13136
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