The Brattle Group was commissioned by PJM to study how market power and market power abuse should be defined in the context of electricity market power mitigation, to examine the market power mitigation practices used in PJM and other organized electricity markets in the United States and internationally, to assess the extent to which “best practices” have developed with respect to market power mitigation in electric power markets, and if appropriate, offer recommendations as to possible changes in PJM’s current practices.

The report reviews antitrust and academic literature as well as the mitigation approaches used in organized power markets to develop an appropriate definition of “market power” and “market power abuse.” The report recommends that market power be defined, consistent with the definition used by antitrust agencies, as “the ability of an individual supplier or group of suppliers to profitably maintain prices above competitive levels for a significant period of time.” However, due to the unique nature of electric power, a “significant period of time” may be as short as several dispatch periods in the presence of price spikes.

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