Todd Aagaard is Professor of Law at the Villanova University Charles Widger School of Law. He teaches and writes in environmental law, energy law, and administrative law. Prior to becoming an academic, he worked as an attorney in the Justice Department's Environment and Natural Resources Division. Andrew N. Kleit is Professor of Energy and Environmental Economics and the founding director of the program in Energy Business and Finance at Penn State University. His writings have examined competition issues in the energy sector. He has worked for several government agencies, including the Federal Energy Regulatory Commission and the Federal Trade Commission.

'Incentives to invest in electricity supply are crucial to successful market design. Introducing in rich detail both US experience and the academic literature, Professors Aagaard and Kleit provide essential background for identifying the reforms needed to make capacity markets efficient and effective in this rapidly evolving industry.' Benjamin F. Hobbs, Theodore M. and Kay W. Schad Professor of Environmental Management, The Johns Hopkins University

• 1. Introduction; 2. Capacity markets primer; 3. Restructured electricity markets and regional transmission organizations; 4. Reliability and the 'missing money' problem; 5. Capacity policies; 6. First-generation capacity markets; 7. Second-generation capacity markets; 8. Capacity market demand; 9. Capacity market supply; 10. Capacity market design; 11. Market power; 12. Minimum offer price rules; 13. The Texas alternative; 14. Conclusion.

Todd Aagaard is Professor of Law at the Villanova University Charles Widger School of Law. He teaches and writes in environmental law, energy law, and administrative law. Prior to becoming an academic, he worked as an attorney in the Justice Department's Environment and Natural Resources Division. Andrew N. Kleit is Professor of Energy and Environmental Economics and the founding director of the program in Energy Business and Finance at Penn State University. His writings have examined competition issues in the energy sector. He has worked for several government agencies, including the Federal Energy Regulatory Commission and the Federal Trade Commission.

'Incentives to invest in electricity supply are crucial to successful market design. Introducing in rich detail both US experience and the academic literature, Professors Aagaard and Kleit provide essential background for identifying the reforms needed to make capacity markets efficient and effective in this rapidly evolving industry.' Benjamin F. Hobbs, Theodore M. and Kay W. Schad Professor of Environmental Management, The Johns Hopkins University

• 1. Introduction; 2. Capacity markets primer; 3. Restructured electricity markets and regional transmission organizations; 4. Reliability and the 'missing money' problem; 5. Capacity policies; 6. First-generation capacity markets; 7. Second-generation capacity markets; 8. Capacity market demand; 9. Capacity market supply; 10. Capacity market design; 11. Market power; 12. Minimum offer price rules; 13. The Texas alternative; 14. Conclusion.

Todd Aagaard is Professor of Law at the Villanova University Charles Widger School of Law. He teaches and writes in environmental law, energy law, and administrative law. Prior to becoming an academic, he worked as an attorney in the Justice Department's Environment and Natural Resources Division. Andrew N. Kleit is Professor of Energy and Environmental Economics and the founding director of the program in Energy Business and Finance at Penn State University. His writings have examined competition issues in the energy sector. He has worked for several government agencies, including the Federal Energy Regulatory Commission and the Federal Trade Commission.

'Incentives to invest in electricity supply are crucial to successful market design. Introducing in rich detail both US experience and the academic literature, Professors Aagaard and Kleit provide essential background for identifying the reforms needed to make capacity markets efficient and effective in this rapidly evolving industry.' Benjamin F. Hobbs, Theodore M. and Kay W. Schad Professor of Environmental Management, The Johns Hopkins University

• 1. Introduction; 2. Capacity markets primer; 3. Restructured electricity markets and regional transmission organizations; 4. Reliability and the 'missing money' problem; 5. Capacity policies; 6. First-generation capacity markets; 7. Second-generation capacity markets; 8. Capacity market demand; 9. Capacity market supply; 10. Capacity market design; 11. Market power; 12. Minimum offer price rules; 13. The Texas alternative; 14. Conclusion.