Market definition and dominant position abuse under the new electricity trading arrangements in England and Wales

The electricity regulator in England and Wales has published a consultation paper on the application of the UK Competition Act 1998 to the energy sectors. The consultation is vital: the law and economics of detecting anti-trust violations in energy are still evolving in both the US and Europe. At the heart of anti-trust analysis are the reasons why prices deviate from marginal cost: scarcity rent, (static) market power, and (dynamic) tacit collusion. Under the new electricity trading arrangements (NETA), market definition could be quite confusing, and the absence of an indicator of locational value clouds the signals for investments in generation and transmission. Moreover, large players in a pay-as-bid auction, as applied in NETA, possess an informational advantage which helps establish a dominant position. The irony is that many of the policy difficulties associated with market definition and dominant position abuse under the Pool, the market instituted upon privatisation in 1990, are unlikely to be resolved completely under NETA.