The Trouble With Electricity Markets: Understanding California's Restructuring Disaster
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- 1 February 2002
- journal article
- Published by American Economic Association in Journal of Economic Perspectives
- Vol. 16 (1) , 191-211
- https://doi.org/10.1257/0895330027175
Abstract
In June 2000, after two years of fairly smooth operation, California's deregulated wholesale electricity market began producing extremely high prices and threats of supply shortages. The upheaval demonstrated dramatically why most current electricity markets are extremely volatile: demand is difficult to forecast and exhibits virtually no price responsiveness, while supply faces strict production constraints and prohibitive storage costs. This structure leads to periods of surplus and of shortage, the latter exacerbated by sellers' ability to exercise market power. Electricity markets can function much more smoothly, however, if they are designed to support price-responsive demand and long-term wholesale contracts for electricity.Keywords
This publication has 3 references indexed in Scilit:
- Understanding Competitive Pricing and Market Power in Wholesale Electricity MarketsThe Electricity Journal, 2000
- An Empirical Analysis of the Potential for Market Power in California’s Electricity IndustryJournal of Industrial Economics, 1999
- Cournot Competition, Forward Markets and EfficiencyJournal of Economic Theory, 1993