Economic withholding in the Alberta electricity market

Abstract

The economic use of offer restatements in the restructured Alberta electricity market can be seen as an exercise of market power. By using this mechanism to alter their energy offer, a supplier can withhold supply from the market leading to a significant price effect. This thesis examines this behaviour in the first half of 2006. Evidence is provided that the locking restatement in particular is used to economically withhold capacity from the market. It is shown that in some instances the impact on pool price from this withholding of capacity is more than $300/MWh and the associated transfer of wealth from load to supply, more than 3 million dollars in a single hour. It is also shown that this exercise of market power is carried out repeatedly during the six month period examined and a large fraction of the instances can be attributed to a single participant.