Analyzing the Impact of Electricity Market Structure Changes and Mergers: The Importance of Forward Commitments

David Brown and Andrew Eckert

No 2016-8, Working Papers from University of Alberta, Department of Economics

Abstract: We investigate how the effects of market structure changes and mergers in restructured electricity markets depend on the level of forward contracting. Following Bushnell, Mansur, and Saravia (2008), we develop a Cournot model of Alberta's wholesale electricity market that incorporates firms' forward positions. Using data from 2013 - 2014, we estimate the monthly forward positions of the five largest firms in the market, and simulate the effects of different market structure changes, including variations of a hypothetical merger with asset divestitures. We examine the sensitivity of the simulated effects of mergers and other market structure changes to assumptions regarding firms' forward commitments. We demonstrate that the wholesale market impacts of mergers and market structure changes depend critically on firms' forward commitments in the post market structure change equilibrium. Our paper demonstrates the importance of establishing a clear understanding of the size and nature of forward commitments in forecasting the effects of mergers and other market structure changes in wholesale electricity markets.

Keywords: Electricity; Mergers; Forward Contracts; Market Power (search for similar items in EconPapers)
JEL-codes: D43 L40 L51 L94 Q40 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2016-06-13
New Economics Papers: this item is included in nep-cmp, nep-com, nep-ene and nep-reg
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Citations: View citations in EconPapers (3)

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Journal Article: Analyzing the Impact of Electricity Market Structure Changes and Mergers: The Importance of Forward Commitments (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2016_008

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