The Pennsylvania - New Jersey - Maryland (PJM) spot market for wholesale electricity was restructured by enabling firms to switch from "cost-based'' bidding to unregulated, "market-based'' bidding in April of 1999. During the first five months of this phase of restructuring, the market-clearing price exceeded the marginal cost of the most expensive power plant almost three times as often as the previous summer. This paper compares market prices with estimates of the prices that would clear a competitive market, namely the marginal cost of producing electricity. I follow the methodology of measuring market imperfections from the literature while accounting for features unique to the PJM market.
     I find evidence of market imperfections leading to an increase in total spot market costs of about 41 percent. I use the markup estimates to compare the PJM experience with that of California during the start of each market. Even though the PJM price cap was four times that of California, markup and total cost estimates using comparable techniques for the first summer of the California market are very similar to my estimates for PJM.
     Unlike California, restructuring in PJM did not lead to substantial changes in the ownership of generating assets. The majority of the electricity in PJM comes from self-supplied generation of vertically integrated utilities that face retail price caps. The effect of market power will be diminished since firms' incentives to drive up price depend on the degree to which production exceeds their native loads. I find that the PJM spot market had costs exceeding those of a perfectly competitive market by $224 million during the summer of 1999. If similar markups affected demand met with bilateral contracts, my measure of the total cost of market power increases to $827 million.

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