The grid operator won't make an agreement to move a little bit of power that is advantageous to the small producer.

So in essence, because they can't get it there.

Sounds like they're exploiting their monopoly over the connections that small producers need.

Sure, more or less. But there are real costs and financial costs of getting the power to the other market, and they are probably being forced by regulation to buy the power at all (prices won't always be tipped in the one direction).