This paper analyzes market inefficiencies in California's restructured wholesale electricity market from 1998 to 2000. It decomposes wholesale electricity payments into production costs, competitive rents, and market power. The study finds that electricity expenditures in California's restructured market rose from $2.04 billion in summer 1999 to $8.98 billion in summer 2000, with 21% of the increase due to production costs, 20% due to competitive rents, and 59% due to market power. The paper discusses the causes of market power, including input costs, scarcity, and market power itself. It also examines the consequences of market power, such as inefficiencies in electricity markets, increased congestion, and potential redistributional effects. The paper also analyzes the structure of California's electricity market, including the role of the Power Exchange (PX) and the Independent System Operator (ISO). It discusses the challenges of measuring market power in electricity markets, including the need to account for intertemporal variations in market power and the impact of market power on electricity prices and generation. The paper concludes that market power significantly contributed to the electricity crisis in California, with prices rising due to the exercise of market power by firms. The study also highlights the importance of understanding the dynamics of market power in electricity markets and the need for effective regulatory responses to ensure competitive pricing and efficient market outcomes.This paper analyzes market inefficiencies in California's restructured wholesale electricity market from 1998 to 2000. It decomposes wholesale electricity payments into production costs, competitive rents, and market power. The study finds that electricity expenditures in California's restructured market rose from $2.04 billion in summer 1999 to $8.98 billion in summer 2000, with 21% of the increase due to production costs, 20% due to competitive rents, and 59% due to market power. The paper discusses the causes of market power, including input costs, scarcity, and market power itself. It also examines the consequences of market power, such as inefficiencies in electricity markets, increased congestion, and potential redistributional effects. The paper also analyzes the structure of California's electricity market, including the role of the Power Exchange (PX) and the Independent System Operator (ISO). It discusses the challenges of measuring market power in electricity markets, including the need to account for intertemporal variations in market power and the impact of market power on electricity prices and generation. The paper concludes that market power significantly contributed to the electricity crisis in California, with prices rising due to the exercise of market power by firms. The study also highlights the importance of understanding the dynamics of market power in electricity markets and the need for effective regulatory responses to ensure competitive pricing and efficient market outcomes.