TY  - JOUR
AU  - Borenstein,Severin
AU  - Bushnell,James
AU  - Wolak,Frank
TI  - Diagnosing Market Power in California's Restructured Wholesale Electricity Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7868
PY  - 2000
Y2  - September 2000
UR  - http://www.nber.org/papers/w7868
L1  - http://www.nber.org/papers/w7868.pdf
N1  - Author contact info:
Severin Borenstein
Haas School of Business
University of California, Berkeley
Berkeley, CA 94720-1900
Tel: 510/642-3689
E-Mail: borenste@haas.berkeley.edu

James B. Bushnell
Department of Economics
One Shields Ave.
University of California, Davis
Davis, CA 95168
Tel: 530/752-3129
E-Mail: jbbushnell@ucdavis.edu

Frank A. Wolak
Department of Economics
Stanford University
Stanford, CA 94305-6072
Tel: 650/723-3944
Fax: 650/725-5702
E-Mail: wolak@zia.stanford.edu
AB  - Effective competition in wholesale electricity markets is a necessary feature of a successful electricity supply industry restructuring.  We examine the degree of competition in the California wholesale electricity market during the period June 1998 to September 1999 by comparing the market prices with estimates of the prices that would have resulted if owners of instate fossil fuel generating facilities behaved as price takers.  We find that there were significant departures from competitive pricing and that these departures are most pronounced during the highest demand periods, which tend to occur during the months of July through September.  Through most of the winter and spring of 1999 there was little evidence of the exercise of market power.  Overall, the exercise of market power raised the cost of power purchases by about 16% above the competitive level. Following the presentation of our methodology for computing the counterfactual price-taking market price, we describe why our calculation represents a lower bound on the extent of market power and why the observed market prices cannot by attributed to competitive peak-lead pricing.
ER  -