Over the past 10 years, the Residual Supply Index (RSI) has been used by regulators and competition authorities as part of their assessment of the strength of competition in different electricity markets. In this article from the January–February 2011 issue of The Electricity Journal, Oscar Arnedillo, a Director at NERA’s Madrid Office, reviews the analysis and evidence presented in the November–December 2010 issue, which concluded that the RSI is a relevant explanatory factor for price-cost markups. According to Mr. Arnedillo, however, the supposed predictive abilities of the RSI may have been the result of analytical and modeling errors, and the evidence in fact suggests that the RSI is an irrelevant explanatory factor for markups.

This article was published in The Electricity Journal, Volume 24, Issue 1, January–February 2011, pages 57–64.