Monopoly bidding strategy under the Ontario MPMA and system reliability

This thesis explores two aspects of the economics of electric power systems. The first is the impact of the Market Power Mitigation Agreement (MPMA) which was in place in Ontario over the period 2002-2005 on the offer strategy of a hypothetical monopoly generator. The second is the relationship between engineering and economic models of power system reliability.;Chapter 2 analyzes the welfare implications of the MPMA in the context of a single period monopoly model. The main findings in this chapter are: (1) that the MPMA is welfare improving; (2) that there are multiple CRQ's that can lead to the social optimum; and (3) that the second best MPMA requires a higher CRQ and thus a lower price cap under demand uncertainty than the expected break-even levels.;Chapter 3 constructs a two period model that assumes two types of generation, thermal and a limited hydro generation capability that can be shifted frictionlessly between periods. In this chapter, the main conclusions are: (1) that peak consumers benefit more from the MPMA than off-peak consumers; (2) that the hydro resource is more efficiently used under the MPMA than under an unregulated monopoly; and (3) that marginal cost pricing is not socially optimal.;Chapter 4 constructs a linkage between the demand for electricity and system reliability by deriving an endogenous demand function for operating reserve based on a statistical model. In this chapter, the main findings are: (1) that the traditional OR requirement may be greater or smaller than the optimal reliability level; (2) that a monopoly generator will produce more electricity if the demand for OR is statistically determined; (3) that if the socially optimal MPMA is applied to the energy market only, the energy market is socially optimal but the OR supply is too low; and (4) that capacity subsidies or capacity market can be welfare improving.;Chapter 1 briefly reviews the history and potential problems of electricity deregulation in Ontario and puts forth the purposes of this thesis.;Chapter 5 summarizes the main conclusions reached in Chapters 2 to 4.