Transmission Rights and Market Power

Historically, the primary barrier to greater competition in the electricity industry has been the vertical integration of most firms. Control of the transmission grid can advantage some competitors at the expense of others. In electricity markets around the world, policymakers have attempted to solve this problem through the creation of independent ‘gridcos’ or ‘system operators’ that either own or operate the network in a nondiscriminatory manner. To date, most of the concern about market power has therefore focused on the ‘horizontal’ market power of large generation companies. However, the introduction of transmission rights into this process adds a new set of market power concerns. To the extent that transmission rights provide their owners with an added level of influence or control over transmission markets, some of the original concerns over ‘vertical’ market power must again be considered.