Notice: Market Concentration Metrics

November 1, 2006

NOTICE – Market Concentration Metrics

To: Market Participants

As part of its general monitoring activities the MSA is releasing a report entitled:

Market Concentration Metrics

This report provides a survey of concentration metrics commonly used by market monitoring agencies and competition authorities around the world.  Using these metrics we consider the Alberta market and the changes in capacity control and overall market concentration over the last few years.  It is the MSA’s view that lack of concentration can contribute in a significant way to the development and maintenance of a fair, efficient and openly competitive market.  It is also the view of the MSA that within some bounds a concentrated market can remain competitive – however to do so, may require additional safeguards, rules and/or surveillance and enforcement tools.  The MSA feels that given recent and pending changes in asset control, that this is an appropriate time to provide this information to the market. Also, the report may be useful to the discussions concerning the development of principles to clarify the intent of Section 6 of the Electric Utilities Act (EUA) - a first step in moving forward with consultation, development and implementation of an approach to mitigate potential market power abuse in the Alberta electricity market.

The report considers a number of metrics which examine different ways of assessing market concentration.  The metrics in this report are viewed by the MSA as useful indicators but no one metric provides a complete picture.  Further, these metrics do not provide insight into participant behaviour, only the potential to abuse market power.

The MSA intends to revisit measures of market concentration following significant market events (such as changes in control, information or asset ownership).  Thus, updates of this report will be periodic rather than on a fixed schedule.

The MSA is interested in feedback from participants on:

• other suggested metrics;

• whether existing metrics can be enhanced (e.g. would metrics be enhanced if generators provided information on long term capacity commitments);

• whether the accuracy of metrics would be significantly enhanced if the MSA requested data on control directly from participants; and,

• whether transparency would be well served if the MSA presented the details of its calculations and/or disclosed the actual market shares of each participant.  Doing so could entail the naming of particular participants and potentially releasing non-public information concerning the control of assets.  The MSA recognizes the natural conflict that exists between the rights of the owners of proprietary information and the market at large.  We are interested in feedback from participants as to whether the release of this information would benefit or harm fair, efficient and open competition.

It is the MSA’s preference to receive feedback in a written form and that it may make this feedback public.  If you have comments or questions, feel free to call the undersigned or Matt Ayres               (403) 705-3182         (403) 705-3182 (Email: matt.ayres@albertamsa.ca).

Sincerely

“Original signed”

W.W. (Wayne) Silk
Vice-President, Chief Operating Officer
Market Surveillance Administrator
Email: wayne.silk@albertamsa.ca
Phone:               (403) 705-8522         (403) 705-8522