Market Power in Power Markets: The Filed-Rate Doctrine and Competition in Electricity

State and federal initiatives have opened the American electric power industry to competition over the past four decades. Although the process has not occurred uniformly across the country, wholesale electricity markets exist everywhere today. Independent power producers can construct generation facilities and sell their output to utilities and industrial customers through bilateral contracts. In many regions, centralized power markets now facilitate the sale of billions of dollars in electricity annually through auctions. Although market forces have replaced direct price regulation in electricity, antitrust enforcement has not expanded its role commensurately. A lack of competition has been a serious problem in many power markets and led to billions of dollars in wealth transfers from ratepayers to generators. The federal courts, however, have invoked the filed-rate doctrine to prohibit private antitrust suits against generators and other market participants accused of collusive behavior. They have held that federal and state regulation is adequate to maintain competitive markets and questioned their own ability to deter anticompetitive behavior, effectively immunizing power generators from antitrust damages liability. Congress or the Supreme Court should limit the application of the filed-rate doctrine in electricity markets and allow for the antitrust laws to be enforced against collusive conduct. Eliminating the filed-rate immunity, however, is not sufficient to create competitive power markets. Private treble-damages suits could help deter express collusion between competing generators. Yet the antitrust laws are comparatively powerless to remedy two important types of anticompetitive behavior seen in power markets. Antitrust jurisprudence in the United States does not proscribe the exercise of unilateral market power and creates high hurdles to finding liability for tacit collusion. Given the limitations of traditional private antitrust remedies, federal and state regulators must focus on creating competitive market structures. They can take three concrete steps toward this end: police generator consolidation more carefully, encourage expansion of the transmission grid, and expose more ratepayers to wholesale price signals. Applying these broader competition policy measures is necessary to redeem a restructuring project that has resulted in several episodes of serious market-power abuse and yielded uncertain benefits.