Offer Price Information and the Exercise of Market Power: The Effect of the Publication of the Historical Trading Report on Competition in the Alberta Electricity Market

Abstract

This paper considers the effect of the publication of offer price information on unilateral market power in Alberta's electricity market. This market is an hourly auction characterized by repeated interaction among a small number of producers, common knowledge of costs and production capabilities, and price inelastic demand. For the period July 13, 2000 to May 18, 2017, offer prices for each hour were published by the market operator, the Alberta Electric System Operator (AESO), in the Historical Trading Report (HTR) after the end of the hour. Using counterfactual analysis from 2010 to 2015 (52,584 hours), the paper finds that the effect of offer price changes after the HTR publication was to raise the average hourly price for electricity in Alberta by $2.48/MWh or about 4.2%, which raised the cost of electricity for Alberta consumers during the six-year period by approximately $1.14 billion. Based on an earlier version of this paper, the AESO was instructed by Alberta's utilities regulator to cease publication of the HTR.

Introduction to the Special Issue on “Competition in the Electricity Sector”

“…Their work provides an alternative lens on how renewable energy and spot market prices interact with each other, offering new empirical benchmarks on the role of renewable energy to the merit order effect at high generation volumes. • Olmstead et al (2020) reflect upon the influence of offer price information to market competition and power in the Alberta Electricity Market. Counterfactual analysis tools are employed to illustrate that the provision of hourly trading reports facilitate learning and allowed for an increased exercise of market power.…”