University of California Energy Institute

PWP-012

The Efficiency of Market Coordination: Evidence from Wholesale Electric Power Pools

Edward Kahn, Richard Gilbert, and Matthew White (U.C. Energy Institute)

In PWP-012 Kahn, Gilbert, and White investigate the performance of wholesale electricity markets and the efficiency gains attributable to power pools as market coordinating institutions. Plant and firm-level performance data for 277 utilities show only limited evidence that formal pooling associations achieve greater efficiencies in their use of existing generation assets, although pooling may have some positive impact in fostering efficient investment. The implication is that, at least for transactions involving assets already in place, the present U.S. wholesale market appears to be reasonably efficient in the use of these assets. The authors conclude with a discussion of the consequences of these results for implementation of the Energy Policy Act of 1992.