Abstract
The author first describes those features of the electricity supply industry that make a prospective market monitoring process essential to a well-functioning wholesale market. Some of these features are shared with the securities industry, although the technology of electricity production and delivery make a reliable transmission network a necessary condition for an efficient wholesale market. These features of the electricity supply industry also make antitrust or competition law alone an inadequate foundation for an electricity market monitoring process. The author provides examples of both the successes and failures of market monitoring from several international markets. More than 10 years of experience with the electricity industry restructuring process has shown that market failures are more likely and substantially more harmful to consumers than other market failures because of how electricity is produced and delivered and the crucial role it plays in the modern economy. Wholesale market meltdowns of varying magnitudes and durations have occurred in electricity markets around the world, and many of them could have been prevented if a prospective market monitoring process backed by the prevailing regulatory authority had been in place at the start of the market.
Highlights
There is a growing consensus around the world that a well-functioning wholesale electricity market requires a prospective market monitoring process
Wholesale market meltdowns of varying magnitudes and durations have occurred in electricity markets around the world, and many of them could have been prevented if a prospective market monitoring process backed by the prevailing regulatory authority had been in place at the start of the market
As discussed in detail in Wolak (2003a and 2003b), a major cause of the California crisis was the unwillingness of Federal Energy Regulatory Commission (FERC) and the California Public Utilities Commission to intervene to fix market design flaws identified by the Market Surveillance Committee (MSC) of the California Independent System Operator (CAISO)
Summary
There is a growing consensus around the world that a well-functioning wholesale electricity market requires a prospective market monitoring process. The fourth lesson is the need for public release of all data submitted to and produced by the market and system operators Having this data readily available to all market participants will enable them to become more sophisticated players in the wholesale market in the sense of being better able to protect themselves against potentially harmful market outcomes. The United States (US) had an inadequate market monitoring process at the start of its electricity re-structuring program This allowed a number significant market performance problems to occur, including the highly publicized California disaster during the period June 2000 to June 2001, before the Federal Energy Regulatory Commission (FERC), the US wholesale market regulator, implemented significant reforms to its market monitoring processes. There are a number of positive lessons from the experience in the US, both before and after the reform of the electricity market monitoring process at FERC
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