Transmission Constraints in Electricity Markets: Evidence from a Nuclear Power Plant Closure

The San Onofre Nuclear Generating Station (SONGS) was closed abruptly and permanently in February 2012. During the previous decade, SONGS had produced about 8% of the electricity generated in California, so its closure had a pronounced impact on the wholesale market, requiring large and immediate increases in generation from other sources. In this paper we use generating unit-level data to examine the impact of the closure on market outcomes. We find that in the months following the closure, almost all of the lost generation from SONGS was met by natural gas plants inside California at an average cost of $65,000 per hour. During high load hours, we find that as much as 75% of the lost load was met by plants located in the southern part of the state. Although lower-cost production was available elsewhere, transmission constraints and other physical limitations of the grid severely limited the ability of other producers to sell into the southern California market. The transmission constraints  also made it potentially more profitable for certain plants to act non-competitively and  we find evidence that one company, in particular, may have manipulated the market.

Speaker: Catie Hausman, Univ. of Michigan