Federal legislation is the only means to protect consumers forthe exercise of market power by dominant generators and utilitiesin competitive electricity markets, according to a U.S. Departmentof Energy report. The report says companies owning abundantgeneration in a local market may face few competitors afterrestructuring, allowing them to exercise market power and chargehigher prices.
“The Energy Department’s analysis has found that the electricitysupply in certain areas of the country is highly concentrated inthe hands of only a few companies,” U.S. Secretary of Energy BillRichardson told a meeting of state regulatory utilitycommissioners. “This raises a warning flag that these companieswill be able to dominate the market and raise prices.” He said thereport shows consumers won’t get the full benefits of competitionunless state and federal legislation addresses the market powerissue.
The report looks at market power in the United Kingdom, whereelectricity markets were opened in 1990; and in California, wherecompetition began in 1998. “In both the United Kingdom andCalifornia… researchers have found that wholesale power priceshave been as much as 75% above competitive levels at times,” thereport says. “Other studies examining electricity markets inAustralia, New Jersey, and Colorado identify potential market powerissues in those areas as well.
“Entry [of competitors] or the threat of entry alone is unlikelyto alleviate market power concerns. …[T]here will be situationsin which owners of existing plants who have market power canprofitably raise prices above the competitive level withouttriggering entry.”
The report also presents simulation analyses of U.S. electricitymarkets that show the profitability of exploiting market power insome regions of the country. New competitors entering the marketare unlikely to fully solve the problem. It also notes thatexisting antitrust laws are not well-suited to deal with the issue.
Potential remedies identified by the report include:
Federal legislation would provide FERC the authority to helpprevent a utility from using its transmission capability todiscriminate in favor of its own generated power. Twenty-fourstates have adopted competition programs.
The 24-page report can be found at https://www.energy.gov/news/HMP-0308.pdf
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