Is Competition Lacking in Electric Generation? (And Why It Should Not Matter)

Fortnightly Magazine - January 1 1997
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Incumbent monopolists won't command high premiums

if newcomers can rebuild capacity from scratch at a cheaper price.

At first glance, many of the nation's regional markets for wholesale electric generation appear monopolistic. In some of the 18 regional power markets we have identified, the leading companies account for 75 to 90 percent of the area's generating assets. In other markets, where the concentration problem does not yet seem as pressing, mergers and acquisitions threaten to raise levels of concentration of ownership in generation.

State regulators have not lost sight of these facts. They do not appear fully satisfied by attempts at the Federal Energy Regulatory Commission (FERC) in Order 888 to mitigate market power in transmission, and its affect in electric commodity markets, even though wholesale deregulation is already fairly advanced and blatant signs of market power are rarely seen, even in markets that show a high degree of concentration. California, for example, has required electric utilities to sell 50 percent of their fossil generation as part of the golden state's restructuring plan.

Perhaps regulators see the current situation (few concrete examples of market manipulation) as a temporary phenomenon. Today, few buyers can participate in the wholesale market; enough sellers can usually be found to create competition. But once retail customers can choose power supply directly and independently, regulators might see a huge demand chasing a dearth of suppliers.

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