February 4, 2005
All rights reserved to Shmuel Oren, UC Berkeley
PSERC
Why Mitigate
nMarket power cannot be eliminated completely. Because of the nature of electricity some suppliers will have locational market power at some times
nNew entry takes time and while it happens suppliers can extract unacceptable rents
nDemand inelasticity can result in occasional market failure (markets do not clear or suppliers can name any price they want)
nISOs are bound by strict rules in acquiring balancing energy and ancillary services that do not allow them to respond to price
nDemand inelasticity and ISO rigidity enables predatory bidding strategies that are designed to exploit market failure conditions