A Review of the Monitoring of Market Power: The Possible Roles of Transmission System Operators in Monitoring for Market Power Issues in Congested Transmission Systems

Paul Twomey, Richard Green, Karsten Neuhoff and David Newbery

Journal of Energy Literature, Vol. 11, No. 2, pp. 3-54, August 2005

Paul Twomey, Richard Green, Karsten Neuhoff and David Newbery, Journal of Energy Literature, Vol. 11, No. 2, pp. 3-54, August 2005

This article surveys the literature and publicly available information on market power monitoring in electricity wholesale markets. After briefly reviewing definitions, strategies and methods of mitigating market power we examine the various methods of detecting market power that have been employed by academics and market monitors/regulators. These techniques include structural and behavioural indices and analysis as well as various simulation approaches. The applications of these tools range from spot market mitigation and congestion management through to long-term market design assessment and merger decisions. Various market-power monitoring units already track market behaviour and produce indices. Our survey shows that these units collect a large amount of data from various market participants and we identify the crucial role of the transmission system operators with their access to dispatch and system information. Easily accessible and comprehensive data support effective market power monitoring and facilitate market design evaluation. The discretion required foreffective market monitoring is facilitated by institutional independence.

(Also published as CEEPR WP 2005-002)

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