An analysis of market power mitigation strategies in Colorado's electricity industry

We apply an algorithm that optimizes the generation dispatch for a dominant firm to Colorado's electricity market and show that the dominant electrici ty generation firm can strategically congest transmission into the region t o receive a maximum price over 50% of the rime. When it does not get the ma ximum price, the dominant firm still receives an average markup more than 1 0% over the competitive price. We use this model to show how mitigation str ategies such as enhancing the transmission grid, divesting the dominant fir m's generation assets, and promoting entry into the generation market can l ower prices in a wholesale electricity generation industry by limiting a do minant firm's marker power.