Price dynamics in the deregulated California energy market

The paper evaluates the trading activity on the California power market in the five moths following the opening of the California Power Exchange. Public data is used to depict shifts in the bidding patterns of power suppliers. Further analysis seeks to break down these shifts into system related and market driven shifts. A new index for identifying market power in electric power markets is derived and applied to the available data. The results indicate that at certain load levels, the market may be vulnerable to gaming. The paper also suggests that by acquiring a strategic mix of high and low cost generation, suppliers can significantly increase their opportunities to exert market power. The concept of market power is reexamined in the context of the inter-temporal, inter-market and inter-commodity equilibria of a deregulated electric power market