EP 28

Paul Joskow

The Difficult Transition to Competitive Electricity Markets in the US

EP 28 | Non-Technical Summary | PDF

Abstract: This paper discusses the causes and consequences of state and federal initiatives to introduce wholesale and retail competition into the U.S. electricity sector from 1995. The
development and performance of wholesale market institutions, the expansion of wholesale power trade, the entry of merchant generating capacity, and the financial collapse of the trading and merchant
generating sector is discussed. Issues regarding the ability of evolving spot wholesale energy market institutions and market power mitigation mechanisms in the absence of some form of peak capacity obligation are
discussed theoretically and evaluated empirically. The diffusion of retail competition and the performance of retail competition programs in eight states is examined empirically. The analysis leads to the overall
conclusion that the development of efficient competitive wholesale and retail electricity markets continues to be a work in progress and faces many technical, institutional and political challenges in the U.S.

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