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-----Original Message-----
From: PWPENS [mailto:pwpens@socrates.Berkeley.EDU]
Sent: Monday, October 01, 2001 1:11 PM
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Subject: POWER Working Paper Email Notification Service (PWPENS)


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N E W    P O W E R    W O R K I N G    P A P E R

Working Paper Series of UCEI
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POWER Working Paper Email Notification Service (PWPENS)
A service of The University of California Energy Institute's Program on 
Workable Energy Regulation (POWER). All POWER working papers can be 
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follow the link to "POWER Research".
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"Trading Inefficiencies in California's Electricity Markets" (October 2001)
         PWP-086 by Severin Borenstein, James Bushnell, Christopher R. 
Knittel, and Catherine Wolfram


         We study price convergence between the two major markets for 
wholesale electricity in California from their deregulation in April 1998 
through November 2000, nearly the end of trading in one market.  We would 
expect profit-maximizing traders to have eliminated persistent price 
differences between the markets.  Institutional impediments and traders' 
incomplete understanding of the markets, however, could have delayed or 
prevented price convergence.  We find that the two benchmark electricity 
prices in California - the Power Exchange's day-ahead price and the 
Independent System Operator's real-time price - differed substantially 
after the markets opened but then appeared to be converging by the 
beginning of 2000.  Starting in May 2000, however, price levels and price 
differences increased dramatically.  We consider several explanations for 
the significant price differences and conclude that rapidly changing market 
rules and market fundamentals, including one buyer's attempt to exercise a 
form of monopoly power, made it difficult for traders to take advantage of 
opportunities that ex post appear to have been profitable.



Download this paper in Adobe Acrobat format: http://www.ucei.org/PDF/pwp086.pdf
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