Market Power Mitigation in Electricity Markets: A Framework for Making Choices

While most experts now agree that the exercise of market power is an important issue for the electricity industry, there is no consensus about how to address the problem. How is a regulator to choose one mitigation approach over another? This paper argues that there is no neutral way to assess recommendations. Debates about market power are occurring on several interrelated levels, from questions of how to measure the phenomenon, to price instrument options, to market design questions. The biases in these debates reflect competing stakeholder interests and underlying normative commitments about how the industry should evolve. Jurisdictions, therefore, should consider market power advice sceptically and in light of their own policy goals.