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We discuss the lessons that can be gleaned from the experience with electricity restructuring to date. The gains from restructuring are most likely to occur through improvement in the efficiency and prudency of long-term investment, but these benefits will be very difficult to measure. Though restructuring could have near term benefits in the efficiency of production and consumption, concerns with the efficiency of decentralized dispatch and the exercise of market power make it at least as likely that restructuring will not benefit society in the short run. We argue that electricity is especially vulnerable to the exercise of market power, even by firms with relatively small market shares, so there will be continued need for regulatory oversight in these markets, at least until there is much more real-time demand responsiveness. Thus, restructuring in electricity markets is not now, and is unlikely to be, synonymous with deregulation.

Effective competition in wholesale electricity markets is the cornerstone of the deregulation of the electricity generation industry. We examine the degree of competition in the California wholesale electricity market during June-November 1998 by comparing the market prices with estimates of the prices that would have resulted if all firms were price takers. We find that there were significant departures from competitive pricing and that it was most pronounced during the highest demand periods. Overall, this raised the cost of power purchases by about 22% above the competitive level. We also explain why the prices observed cannot be attributed to competitive peak-load pricing.

US airlines have lost nearly $60 billion ($2009) in domestic markets since the 1978 deregulation, most of it in the last decade. The dismal financial record challenges the economics of deregulation. I examine some of the common explanations among industry participants and researchers--including high taxes and fuel costs, weak demand, and competition from lower-cost airlines. Major drivers seem to be the demand downturn after 9/11--demand remains much weaker today than in 2000--and the large cost differential between legacy and low-cost carriers, which has persisted even as the price differential between them has greatly declined. [ABSTRACT FROM AUTHOR]

This article focuses on the restructuring of the electricity market in California. The restructuring plan treated each of the components of the electricity industry quite differently. Electricity generation was to be deregulated and the investor-owned utilities were to reduce substantially their ownership of generation facilities. Long-distance electricity transmission was to remain a regulated function, with the utilities owning the lines and receiving compensation for their use. Local distribution of electricity also remained a regulated utility function, but the financial aspects of retail markets were opened to competition among energy service providers. The scheme implemented for stranded cost recovery was a competition transition charge. Instead of a simple fixed surcharge on electricity consumption, the competition transition charge fixed the retail price for electricity. It then required customers to pay for the wholesale price of electricity, and, in addition, to pay to the investor-owned utilities the difference between 6 cents and the actual wholesale price of electricity. The effect was to freeze retail rates for consumers and allow the recovery of stranded costs to vary inversely with the wholesale price of electricity.

Presents information about competition in deregulated electricity markets and the understanding of market power in the United States. Behavior of price-taking firms and competitive markets; Description of firms with market power; Differences between competitive behavior and market power; Efficiency and equity concerns; Market power and government interventions. INSET: A Numerical Illustration of Competitive Peak-Load Pricing.

Using historical cost data, we simulate the California electricity market after deregulation as a static Cournot market with a competitive fringe. Our model indicates that, under the pre-deregulation structure of generation ownership, there is potential for significant market power in high demand hours, particularly in the fall and early winter months when hydroelectric output is at Its lowest level relative to demand. The results also show that two of the most important factors in determining the extent and severity of market power are the level of available hydroelectric production and the elasticity of demand. [ABSTRACT FROM AUTHOR]