Competitiveness of deregulated bulk power markets
This study examines whether deregulation in wholesale electricity markets (or bulk power markets) results in competitive bulk power trade. The study analyzes data from the Southwest Bulk Power Market Experiment, in which participating utilities were allowed flexibility in setting rates for specified sales. The author uses two approaches: (1) simulating bulk power trade under competitive, monopoly, and dominant-firm market assumptions, and (2) comparing actual bulk power prices in the base and experimental years. The simulation approach indicates that the volume and welfare gains of trade under market power assumptions do not appreciably differ from those under the competitive assumptions, providing no clues to the question of competitiveness. On the other hand, the comparison of actual prices between 1983 and 1984 suggests the possibility that market power may, in the short run, lead to higher prices under relaxed regulation. The results also indicate that trading utilities may switch from transactions with long-term contracts to short-term transactions.