Market power in a liberalized power market: The case of Italy
The Italian electricity market is changing following implementation of the legislative decree no.79, dated 16 March 1999, 'implementation of directive 96 /92 /EC establishing common rules for the internal market in electricity'. Electricity generation and supply are liberalized activities, while transmission and distribution activities remain natural monopolies with the principle of regulated third party access (RTPA) to the grids. The legislative decree distinguishes between eligible and franchised customers. Eligible customers are allowed to buy power from unregulated generators in power exchange markets (PX) with unrestricted price formation. Franchised customers continue to buy electricity at regulated tariff rates, which are to be replaced gradually transforming all franchised consumers into eligible ones. One role of the PX, to be established by 1 January 2002, is to hold auctions determining hourly prices. Supply and demand bids determine the market-clearing price for electricity.