Restructured Electricity Markets: California Market Design Enabled Exercise of Market Power
Abstract
Our analysis and other studies found evidence that wholesale electricity suppliers exercised market power by raising prices above competitive levels during the summer of 2000 and at other times after restructuring. Neither our analysis nor the other studies addressed whether any market power exercised in California was in violation of federal or other laws pertaining to the sale of electricity. However, our analysis and other studies found that during some periods, prices did not follow patterns consistent with prices under competitive conditions. For example, several studies concluded that wholesale suppliers were able to exercise market power by withholding electricity from the market, only making it available at the last minute when buyers were desperate to acquire enough electricity to meet demand and therefore willing to pay higher prices. As part of our analysis, we also found evidence of increasingly tight balances between demand and supply during the same period-a hot summer caused demand to rise, while dry weather the previous winter meant that hydroelectricity was in short supply. Because tight demand and supply balances would also lead to higher than normal prices, even under competitive conditions, we could not isolate how much of the relatively high prices was due to the exercise of market power. Other factors, such as environmental constraints on some electricity generators and higher fuel costs, were also identified by the other studies as contributing factors to the high prices.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jun 01, 2002
- Accession Number
- ADA404181
Entities
Organizations
- United States Government Accountability Office