System dynamic index for market power mitigation in the restructuring electricity industry

Mitigation of market power is essential for successful implementation of power systems deregulation. It is one of the main incentives for restructuring the electricity industry today. Not only will it bring more competition and, in the long run, lower electricity prices, but it will also stimulate new technology and lead to more efficient operation of generators. Several important factors causing market power problems are analyzed in this paper. Generation concentration and transmission congestion are addressed as two of the critical issues in the restructuring electricity industry. A system level, energy-based, dynamic Herfindahl-Hirschman Index (HHI) indicating these issues is firstly proposed in this paper and tested by a sample power system using GE's multi area production simulation (MAPS) tools. A suggestion is made that future market policy makers should use this index to find and mitigate their market power problems, so that the power system is treated as a whole, not just as generation, transmission, load, or other individual components.