An Analysis of Market Power Mitigation Strategies in Colorado's Electricity Industry

• Published in: The Energy journal (Cambridge, Mass.) Vol. 22; no. 3; pp. 55 - 77
• Main Authors: Quick, David M., Carey, Janis M.
• Format: Journal Article
• Language: English
• Published: Los Angeles, CA Energy Economics Education Foundation, Inc 01-01-2001; SAGE Publications; International Association for Energy Economics; Sage Publications Ltd. (UK)
• Series: The Energy Journal
• Subjects: Analysis; Applied sciences; Average prices; Competition; Divestiture; Economic data; Economic models; Electric energy; Electric industries; Electric power; Electric power industry; Electric power plants; Electric power production; Electric rates; Electric utilities; Electricity; Electricity distribution; Electricity generation; Energy; Energy economics; Energy industry; Energy use; Exact sciences and technology; Fringe; General, economic and professional studies; Industrial market; Management consultants; Market power; Market prices; Market shares; Markups; Natural gas prices; Prices; Pricing policies; Public utilities; Studies; Transmission lines; United States; North America; Colorado; America; United States > US; Market power; Electricity industry; electricity prices; Antitrust policy; US; Dispatching problem; Liberalisation; Transportation network; Electric power production; Market price; Electric power industry; Market economy; Firm strategy
• ISSN: 0195-6574; 1944-9089
• DOI: 10.5547/ISSN0195-6574-EJ-Vol22-No3-3

We apply an algorithm that optimizes the generation dispatch for a dominant firm to Colorado's electricity market and show that the dominant electricity generation firm can strategically congest transmission into the region to receive a maximum price over 50% of the time. When it does not get the maximum price y the dominant firm still receives an average markup more than 10% over the competitive price. We use this model to show how mitigation strategies such as enhancing the transmission grid, divesting the dominant firm's generation assets, and promoting entry into the generation market can lower prices in a wholesale electricity generation industry by limiting a dominant firm's market power.