IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/8157.html
   My bibliography  Save this paper

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

Author

Listed:
  • Paul Joskow
  • Edward Kahn

Abstract

We simulate competitive benchmark wholesale prices for electricity in California during the summer of 2000, taking account of changes in natural gas prices, electricity demand, and imports of electricity from other states during this time period. We also examine the impact of changes in the prices of NOx emissions permits on estimated competitive benchmark prices for electricity. The competitive benchmark prices are then compared to actual prices. A significant fraction of the changes in wholesale electricity prices in California during Summer 2000 can be explained by these four factors. The impact of higher NOx permit prices, and their interaction with reduced imports into California, have a particularly large impact on competitive benchmark prices. However, during June, July and August a large unexplained difference between actual prices and competitive benchmark prices remains. We tentatively attribute this difference to supplier market power and related market imperfections. We then examine whether there is evidence of strategic behavior by suppliers during the highest priced hours during the summer. Evidence of supply withholding --- exercise of market power --- during these hours is identified.

Suggested Citation

  • Paul Joskow & Edward Kahn, 2001. "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000," NBER Working Papers 8157, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8157
    Note: IO
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w8157.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Severin Borenstein & James Bushnell, 1999. "An Empirical Analysis of the Potential for Market Power in California’s Electricity Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 285-323, September.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    3. Severin Borenstein & James Bushnell & Frank Wolak, 2000. "Diagnosing Market Power in California's Restructured Wholesale Electricity Market," NBER Working Papers 7868, National Bureau of Economic Research, Inc.
    4. Bushnell, James & Wolfram, Catherine, 2008. "Electricity Markets," Staff General Research Papers Archive 31547, Iowa State University, Department of Economics.
    5. 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, January.
      • 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, January.
    6. Matthew E. Kahn & Siqi Zheng, 2016. "Introduction," Introductory Chapters, in: Blue Skies over Beijing:Economic Growth and the Environment in China, Princeton University Press.
    7. 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.
    8. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rajnish Kamat & Shmuel Oren, 2004. "Two-settlement Systems for Electricity Markets under Network Uncertainty and Market Power," Journal of Regulatory Economics, Springer, vol. 25(1), pages 5-37, January.
    2. Erik Lundin, 2021. "Market Power and Joint Ownership: Evidence from Nuclear Plants in Sweden," Journal of Industrial Economics, Wiley Blackwell, vol. 69(3), pages 485-536, September.
    3. Walsh, Darragh & Malaguzzi Valeri, Laura & Di Cosmo, Valeria, 2016. "Strategic bidding, wind ownership and regulation in a decentralised electricity market," MPRA Paper 71502, University Library of Munich, Germany.
    4. Twomey, P. & Green, R. & Neuhoff, K. & Newbery, D., 2005. "A Review of the Monitoring of Market Power The Possible Roles of TSOs in Monitoring for Market Power Issues in Congested Transmission Systems," Cambridge Working Papers in Economics 0504, Faculty of Economics, University of Cambridge.
    5. Petter Vegard Hansen, 2009. "Inflow Uncertainty in Hydropower Markets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(1), pages 189-207, March.
    6. Matthias Janssen & Magnus Wobben, "undated". "Electricity Pricing and Market Power - Evidence from Germany," Working Papers 200121, Institute of Spatial and Housing Economics, Munster Universitary.
    7. Janssen, Matthias & Wobben, Magnus, 2008. "Electricity pricing and market power: Evidence from Germany," CAWM Discussion Papers 9, University of Münster, Münster Center for Economic Policy (MEP).
    8. Paizs, László & Mészáros, Mátyás Tamás, 2003. "Piachatalmi problémák modellezése a dereguláció utáni magyar áramtermelő piacon [Modelling problems of market power on the Hungarian electricity-generation market after deregulation]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 735-764.
    9. Tamaschke, R. & Docwra, G. & Stillman, R., 2005. "Measuring market power in electricity generation: A long-term perspective using a programming model," Energy Economics, Elsevier, vol. 27(2), pages 317-335, March.
    10. Newbery, David M. & Greve, Thomas, 2017. "The strategic robustness of oligopoly electricity market models," Energy Economics, Elsevier, vol. 68(C), pages 124-132.
    11. Ciarreta, Aitor & Espinosa, Maria Paz & Pizarro-Irizar, Cristina, 2017. "Has renewable energy induced competitive behavior in the Spanish electricity market?," Energy Policy, Elsevier, vol. 104(C), pages 171-182.
    12. Rubin, Ofir D. & Babcock, Bruce A., 2013. "The impact of expansion of wind power capacity and pricing methods on the efficiency of deregulated electricity markets," Energy, Elsevier, vol. 59(C), pages 676-688.
    13. Paul L. Joskow, 2001. "California's Electricity Crisis," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 17(3), pages 365-388.
    14. David P. Brown & Andrew Eckert, 2018. "Analyzing the Impact of Electricity Market Structure Changes and Mergers: The Importance of Forward Commitments," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 52(1), pages 101-137, February.
    15. Erin T. Mansur, 2007. "Do Oligopolists Pollute Less? Evidence From A Restructured Electricity Market," Journal of Industrial Economics, Wiley Blackwell, vol. 55(4), pages 661-689, December.
    16. Christian Schultz, 2005. "Virtual Capacity and Competition," CESifo Working Paper Series 1487, CESifo.
    17. Dressler, Luisa, 2016. "Support schemes for renewable electricity in the European Union: Producer strategies and competition," Energy Economics, Elsevier, vol. 60(C), pages 186-196.
    18. Hendrik Bessembinder & Michael L. Lemmon, 2002. "Equilibrium Pricing and Optimal Hedging in Electricity Forward Markets," Journal of Finance, American Finance Association, vol. 57(3), pages 1347-1382, June.
    19. Aitor Ciarreta & María Espinosa, 2010. "Market power in the Spanish electricity auction," Journal of Regulatory Economics, Springer, vol. 37(1), pages 42-69, February.

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    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:nbr:nberwo:8157. See general information about how to correct material in RePEc.

    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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.