The Value of Transmission in Electricity Markets: Evidence from a Nuclear Power Plant Closure

In this paper, we exploit the abrupt closure of the San Onofre Nuclear Generating Station to estimate the value of electricity transmission. Following the plant’s closure in February 2012, we find that as much as 75% of lost generation during high demand hours was met locally. Although lower-cost production was available elsewhere, transmission constraints and other physical limitations of the grid severely limited the ability of other producers to sell into the southern California market. These constraints also made it potentially more profitable for certain plants to exercise market power, and we find evidence consistent with one company acting non-competitively.