The Center for Research in Regulated Industries (CRRI) at Rutgers University, which aims to further study of regulation in economics, finance, and institutions, held its 37th Annual Eastern Conference at Turf Valley Resort in Ellicott City, Maryland, on 6–8 June 2018. NERA Senior Consultant Willis Geffert spoke at the workshop, giving a presentation titled “Capacity Market Design in Mexico and Other Markets, Incentives to Exercise Market Power,” which summarized a paper authored by Mr. Geffert and NERA Director Kurt Strunk. Mr. Strunk coauthored the presentation with Mr. Geffert.
In the presentation, Mr. Geffert and Mr. Strunk discussed a specific potential supply-withholding tactic that generation companies could attempt in the Mexican wholesale electricity market to try to increase prices in the capacity market. This tactic stems from the direct link in Mexico between the actual availability of capacity in critical hours during a given year and the supply of capacity in the ex post balancing market that determines capacity prices for the same year. Mr. Geffert and Mr. Strunk also summarized their research comparing the Mexican capacity market to other global capacity markets in light of this potential supply-withholding tactic.
Mr. Geffert and Mr. Strunk are quick to qualify that every capacity market design has advantages and disadvantages. They do not assess which capacity market designs may or may not work better at market power prevention, nor have they quantified, assessed, or identified actual attempts at exerting market power in the Mexican wholesale electricity market. The Mexican market, like other capacity markets, has rules in place intended to prevent the exercise of market power.
To learn more, visit the CRRI website.