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A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000â€

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  • Paul L. Joskow
  • Edward Kahn

Abstract

During the Summer of 2000, wholesale electricity prices in California were nearly 500% higher than they were during the same months in 1998 or 1999. This price explosion was unexpected and has called into question whether electricity restructuring will bring the benefits of competition promised to consumers. The purpose of this paper is to examine the factors that explain this increase in wholesale electricity prices. We simulate competitive benchmark prices for Summer of 2000 taking account of all relevant supply and demand factors—gas prices, demand, imports from other states, and emission permit prices. We then compare the simulated competitive benchmark prices with the actual prices observed. We find that there is a large gap between our benchmark competitive prices and observed prices, suggesting that the prices observed during Summer 2000 reflect, in part, the exercise of market power by suppliers. We then proceed to examine supplier behavior during high-price hours. We find evidence that suppliers withheld supply from the market that would have been profitable for price-taking firms to sell at the market price.

Suggested Citation

  • Paul L. Joskow & Edward Kahn, 2002. "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000â€," The Energy Journal, , vol. 23(4), pages 1-35, October.
    • Handle: RePEc:sae:enejou:v:23:y:2002:i:4:p:1-35
    DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No4-1
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    References listed on IDEAS

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    1. Catherine D. Wolfram, 1998. "Strategic Bidding in a Multiunit Auction: An Empirical Analysis of Bids to Supply Electricity in England and Wales," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 703-725, Winter.
    2. Paul L. Joskow, 1989. "Regulatory Failure, Regulatory Reform, and Structural Change in the Electrical Power Industry," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1989 Micr), pages 125-208.
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    Cited by:

    1. Kim, Seon-Yong & Kim, Man-Keun & Choi, Myung Hwan & Kim, Dae-Wook, 2024. "Optimal preventive maintenance: Balancing reliability and costs in the electricity market," Energy Policy, Elsevier, vol. 194(C).

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