NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Regulating Competition in Wholesale Electricity Supply

Frank A. Wolak

Chapter in NBER book Economic Regulation and Its Reform: What Have We Learned? (2014), Nancy L. Rose, editor (p. 195 - 289)
Conference held September 9-10, 2005
Published in June 2014 by University of Chicago Press
© 2014 by the National Bureau of Economic Research

The experience of the past twenty years suggests that the potential benefits from electricity industry restructuring are small relative to those that can be achieved from introducing competition into other network industries. In addition, the probability of a costly market failure in the electricity supply industry, often due to the exercise of unilateral market power, appears to be significantly higher than in other network industries. The major theme of this chapter is that electricity industry restructuring is an evolving process that requires market designers to choose between an imperfectly competitive market and an imperfect regulatory process to provide incentives for least-cost supply at all stages of the production process. A fundamental goal of that process is to limit the ability of suppliers to exercise unilateral market power in wholesale generation markets, either explicitly through market price-setting mechanisms or implicitly through the regulatory price-setting process. Some ways the regulator can limit the ability of suppliers to exercise unilateral market power are to (1) alter the market structure, (2) change market rules, (3) impose penalties and sanctions on market participants for their behavior, and (4) explicitly set the prices that market participants receive for their production. This chapter provides a theoretical framework for understanding how to make these choices in designing a wholesale electricity generation market that provides consumers with greater benefits relative to those under the former vertically-integrated regulated monopoly regime.

This chapter is no longer available for free download, since the book has been published. To obtain a copy, you must buy the book.
Order from Amazon.com

This paper was revised on April 5, 2013

Acknowledgments and Disclosures

Machine-readable bibliographic record - MARC, RIS, BibTeX

Users who downloaded this chapter also downloaded these:
Joskow Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks
Baldwin w14056 Big-Think Regionalism: A Critical Survey
Rose Learning from the Past: Insights for the Regulation of Economic Activity
Carlton and Picker Antitrust and Regulation
Wolak Market Design and Price Behavior in Restructured Electricity Markets: An International Comparison
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us