This paper, published in June 2002, presents a method to decompose wholesale electricity payments into production costs, inframarginal competitive rents, and payments resulting from market power. Using data from June 1998 to October 2000 in California, the authors find significant departures from competitive pricing, particularly during high-demand summer months. Electricity expenditures in the state's restructured wholesale market rose from $2.04 billion in summer 1999 to $8.98 billion in summer 2000. The study attributes 21% of this increase to increased production costs, 20% to increased competitive rents, and 59% to increased market power. The authors discuss the dynamics of market power in electricity markets and its consequences, including inefficient reallocation of production, increased congestion, and reduced economic efficiency. They also analyze the structure of California's electricity market, including the role of the Power Exchange (PX) and the Independent System Operator (ISO), and provide a detailed estimation technique for measuring market power.This paper, published in June 2002, presents a method to decompose wholesale electricity payments into production costs, inframarginal competitive rents, and payments resulting from market power. Using data from June 1998 to October 2000 in California, the authors find significant departures from competitive pricing, particularly during high-demand summer months. Electricity expenditures in the state's restructured wholesale market rose from $2.04 billion in summer 1999 to $8.98 billion in summer 2000. The study attributes 21% of this increase to increased production costs, 20% to increased competitive rents, and 59% to increased market power. The authors discuss the dynamics of market power in electricity markets and its consequences, including inefficient reallocation of production, increased congestion, and reduced economic efficiency. They also analyze the structure of California's electricity market, including the role of the Power Exchange (PX) and the Independent System Operator (ISO), and provide a detailed estimation technique for measuring market power.