1. Comments on Andrew Sweeting, “Market Outcomes and Generator Behaviour in the England and Wales Electricity Wholesale Market 1995-2000” by Catherine Wolfram Haas School of Business and UCEI

2. March 22, 2002POWER Conference Page 1 Motivating facts. –The structure of the generation market in England and Wales went through dramatic changes in the late 1990s. NP and PG’s share of capacity shrunk from 70% to 30%. Divestitures (1996, 1999). Entry by new CCGTs. BUT –Markups (i.e. (P-MC)/P) did not fall.

3. March 22, 2002POWER Conference Page 2 Sweeting’s analysis. Considers the period 1995-2000. –Summarizes prices. –Measures markups. –Counts hours where one generator would have been pivotal. –Profitable deviation analysis. –Measures productive efficiency losses.

4. March 22, 2002POWER Conference Page 3 Sweeting’s “profitable deviation” analysis. Consider a simple example with 2 firms who each own 2 units. There is inelastic system demand for 3 units. A negative deviation is profitable for Firm A:

5. March 22, 2002POWER Conference Page 4 Summary of results. There are three distinct periods: –1995 - April 1996 (price cap in effect, no divestitures): negative deviations imply restrained bidding behavior. –May 1996 – July 1999 (before 2 nd divestiture): zero/ slightly positive deviations imply static profit maximizing behavior. –After July 1999 (after 2 nd divestiture): positive deviations suggest tacit collusion.

6. March 22, 2002POWER Conference Page 5 Comments/suggestions. –Do more robustness checks on cost estimates (e.g. current estimates don’t account for startup costs). –Explore the impact of contracts further. –Find more evidence to backup claim of tacit collusion. –Add more detail explaining the simplifications made to the scheduling algorithm (SuperGOAL).