Competitive Wholesale Markets for Electricity

Conclusion

Competitive wholesale market approaches for organizing electricity markets are based upon the conceptual principles of competitive markets. For markets to meet competitive criteria, it is necessary that neither generators nor buyers have market power and, thus, cannot establish price or quantity outcomes. California encouraged new generation ownership to reduce market concentration on the supply side. Incumbents were encouraged to divest existing generation and to stop building new generation. On the demand side, California encouraged new energy service providers (ESPs) to compete against the incumbent utilities. Initially, supply exceeded demand and most observers failed to perceive that these initial attempts to reduce market power: (a) were not sufficient and/or (b) failed to account for other design flaws. Further, no one recognized that the elements of the “Perfect Storm” were looming on the horizon.