Electricity Market Monitoring and the Economics of Regulation

Electricity Market Monitoring and the Economics of Regulation Restructuring of wholesale electricity markets in the U.S. has brought new institutions known as Regional Transmission Organizations (RTO) and Market Monitoring Institutions (MMI) that oversee competition in the energy markets that they operate. Both regulators and external observers have viewed MMIs as impartial observers intended to police these exchanges against the exercise of market power. The economics of regulation generally questions (but does not always reject) public interest interpretations on grounds that interest groups use politics and regulatory procedure to shape institutions to their advantage. MMIs in fact originated as a strategic move by California’s large utilities in connection with that state’s restructuring, intended to advantage them against competitors. The responses of MMIs to the economically efficient practice of “virtual bidding” in RTOs differed with the relative strengths of different interests in the governance of those organizations. As policy, the Federal Energy Regulatory Commission should re-examine its endorsement of MMIs and consider centralizing their functions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Electricity Market Monitoring and the Economics of Regulation

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Publisher
Springer US
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC.
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-008-9172-1
Publisher site
See Article on Publisher Site

Abstract

Restructuring of wholesale electricity markets in the U.S. has brought new institutions known as Regional Transmission Organizations (RTO) and Market Monitoring Institutions (MMI) that oversee competition in the energy markets that they operate. Both regulators and external observers have viewed MMIs as impartial observers intended to police these exchanges against the exercise of market power. The economics of regulation generally questions (but does not always reject) public interest interpretations on grounds that interest groups use politics and regulatory procedure to shape institutions to their advantage. MMIs in fact originated as a strategic move by California’s large utilities in connection with that state’s restructuring, intended to advantage them against competitors. The responses of MMIs to the economically efficient practice of “virtual bidding” in RTOs differed with the relative strengths of different interests in the governance of those organizations. As policy, the Federal Energy Regulatory Commission should re-examine its endorsement of MMIs and consider centralizing their functions.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Jul 20, 2008

References

  • Measuring duopoly power in the British electricity spot market
    Wolfram, C.

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