Ex Post Market Monitoring in Electric Power Markets

Michael Giberson

The Twomey et al. paper on market monitoring notes that some of the various economic tools used to track market power in electric power markets are applied ex ante, while others are applied ex post. Ex ante tools are the more powerful tools, using the networked nature of the business to intercept opportunistic behavior before it skews market results. Elegant in principle, if hard to do with precision in practice.

Ex post methods are applied after the market results in an attempt to discover whether or not a party actually engaged in opportunistic behaviors. By operating after the fact, these tools potentially have access to more information and the time for thorough review. However, a cost that comes from working after the fact is that once the harm to the market is done, fully unwinding that harm can be impossible. The networked nature of the electric grid and the constant interrelatedness of power flows means that locally manipulated market results can have echoes throughout the market.

Ex ante mitigation mostly works in quiet. Market participants know the rules, which typically are approved by the government regulator, the market software implements the pre-approved rules more or less automatically, and the product is usually no more than a table or two in market’s annual report.

Ex post mitigation measures, on the other hand, can spill into public. See, for example, this story about a market power mitigation process making news in Texas.