Information and Competition in Electric Power Markets : Is Transparency the Holy Grail?

Electricity market restructuring has prompted debate in the United States and abroad about the extent to which wholesale market information should be made available to regulators, market participants, and the public. Unfortunately, the effects of transparency on market performance are complex. Transparency can be beneficial but it also can come with substantial costs, some of which may not be obvious. As a result, it can be difficult for a policymaker to determine whether a particular information policy that enhances or diminishes transparency is desirable in the sense that its benefits outweigh its costs. In this article, I discuss how information needs have changed with restructuring, the potential costs and benefits of information exchanges and transparency more generally, and a simple cost-benefit framework for determining whether a particular information policy should be implemented in an electric power or related market. The framework is designed to streamline the assessment of costs and benefits, potentially reducing the burden on a policymaker of determining whether an information policy should be implemented