IDEAS home Printed from
   My bibliography  Save this paper

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


  • 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.

Suggested Citation

  • Bushnell, James, 2005. "Looking for Trouble: Competition Policy in the U.S. Electricity Industry," Staff General Research Papers Archive 13140, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:13140

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    1. Randy Becker & Vernon Henderson, 2000. "Effects of Air Quality Regulations on Polluting Industries," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 379-421, April.
    2. John A. List & Daniel L. Millimet & Per G. Fredriksson & W. Warren McHone, 2003. "Effects of Environmental Regulations on Manufacturing Plant Births: Evidence from a Propensity Score Matching Estimator," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 944-952, November.
    3. Linn, Joshua, 2010. "The effect of cap-and-trade programs on firms' profits: Evidence from the Nitrogen Oxides Budget Trading Program," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 1-14, January.
    4. Jos Sijm & Karsten Neuhoff & Yihsu Chen, 2006. "CO 2 cost pass-through and windfall profits in the power sector," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 49-72, January.
    5. Goulder, Lawrence H. & Hafstead, Marc A.C. & Dworsky, Michael, 2010. "Impacts of alternative emissions allowance allocation methods under a federal cap-and-trade program," Journal of Environmental Economics and Management, Elsevier, vol. 60(3), pages 161-181, November.
    6. Dallas Burtraw & Karen Palmer, 2008. "Compensation rules for climate policy in the electricity sector," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(4), pages 819-847.
    7. Gray, Wayne B & Shadbegian, Ronald J, 1998. "Environmental Regulation, Investment Timing, and Technology Choice," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 235-256, June.
    8. Michael Greenstone, 2002. "The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Act Amendments and the Census of Manufactures," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1175-1219, December.
    9. List John A. & Millimet Daniel L & McHone Warren, 2004. "The Unintended Disincentive in the Clean Air Act," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-28, February.
    10. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    11. Oberndorfer, Ulrich, 2009. "EU Emission Allowances and the stock market: Evidence from the electricity industry," Ecological Economics, Elsevier, vol. 68(4), pages 1116-1126, February.
    12. A. Lans Bovenberg & Lawrence H. Goulder, 2001. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does It Cost?," NBER Chapters,in: Behavioral and Distributional Effects of Environmental Policy, pages 45-90 National Bureau of Economic Research, Inc.
    13. Lawrence H. Goulder & Marc A. C. Hafstead & Michael S. Dworsky, 2009. "Impacts of Alternative Emissions Allowance Allocation Methods under a Federal Cap-and-Trade Program," NBER Working Papers 15293, National Bureau of Economic Research, Inc.
    14. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, March.
      • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521660839, March.
    15. Gray, Wayne B, 1987. "The Cost of Regulation: OSHA, EPA and the Productivity Slowdown," American Economic Review, American Economic Association, vol. 77(5), pages 998-1006, December.
    16. Michael Dworsky & Lawrence Goulder & Marc Hafstead, 2009. "Impacts of Alternative Emissions Allowance Allocation Methods Under a Federal Cap-and-Trade Program," Discussion Papers 08-048, Stanford Institute for Economic Policy Research.
    17. Stefan P. Schleicher & Claudia Kettner & Angela Köppl & Gregor Thenius, 2007. "Stringency and Distribution in the EU Emissions Trading Scheme –The 2005 Evidence," Working Papers 2007.22, Fondazione Eni Enrico Mattei.
    18. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    19. Puller, Steven L., 2006. "The strategic use of innovation to influence regulatory standards," Journal of Environmental Economics and Management, Elsevier, vol. 52(3), pages 690-706, November.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Evans, Lewis & Counsell, Kevin & Guthrie, Graeme, 2006. "Options Provided by Storage can Explain High Electricity Prices," Working Paper Series 3943, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    2. David P. Brown & Andrew Eckert, 2017. "Electricity market mergers with endogenous forward contracting," Journal of Regulatory Economics, Springer, vol. 51(3), pages 269-310, June.
    3. James Bushnell, 2007. "Oligopoly equilibria in electricity contract markets," Journal of Regulatory Economics, Springer, vol. 32(3), pages 225-245, December.
    4. Evans, Lewis & Guthrie, Graeme & Lu, Andrea, 2013. "The role of storage in a competitive electricity market and the effects of climate change," Energy Economics, Elsevier, vol. 36(C), pages 405-418.
    5. Lewis Evans & Graeme Guthrie & Steen Videbeck, 2008. "Assessing The Integration Of Electricity Markets Using Principal Component Analysis: Network And Market Structure Effects," Contemporary Economic Policy, Western Economic Association International, vol. 26(1), pages 145-161, January.
    6. 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 0405, Faculty of Economics, University of Cambridge.
    7. 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, vol. 27(3), pages 281-308, January.
    8. Pittman, Russell, 2007. "Restructuring the Russian electricity sector: Re-creating California?," Energy Policy, Elsevier, vol. 35(3), pages 1872-1883, March.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:isu:genres:13140. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Curtis Balmer). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.