  Market power exercise in the electricity markets distorts market prices and
diminishes social welfare. Many markets have implemented market power
mitigation processes to eliminate the impact of such behavior. The design of
mitigation mechanisms has a direct influence on investors' profitability and
thus mid-/long-term resource adequacy. In order to evaluate the effectiveness
of the existing market power mitigation mechanisms, this paper proposes a
mitigation-aware strategic bidding model and studies the bidding strategies of
the market participants under current practice. The proposed bidding model has
a bilevel structure with strategic participant's profit maximization problem in
the upper level and the dispatch problem for market operators in the lower
level. In particular, the consideration of potential offer mitigation is
incorporated as upper-level constraints based on the conduct and impact tests.
This bilevel problem is reduced to a single-level mixed-integer linear program
using the KKT optimality conditions, duality theory, and linearization.
Numerical results illustrate how a strategic player can exercise market power
to achieve a higher profit even under the current market power mitigation
process and we analyze the social impact that the market power exercise
results.
