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Ontario's Auction Market for Financial Transmission Rights: An Analysis of its Efficiency

Derek E. H. Olmstead

Year: 2018
Volume: Volume 39
Number: Number 1
DOI: 10.5547/01956574.39.1.dolm
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Abstract:
Financial transmission rights (FTR) are financial products that entitle their holder to receive a payment based on the degree of congestion in a transmission system. In many liberalized electricity markets, FTR are sold at auction by the local electricity system operator. This paper addresses several questions about the performance of FTR auctions in Ontario's restructured electricity market, including whether auction market clearing prices approximate realized payouts and whether there is any evidence that the competitiveness of auctions, as measured by the number of bidders, affects the forward market unbiasedness or informational efficiency of the auctions. The paper finds that the auction process is inefficient in the sense that market clearing prices are substantially and systematically lower than realized payouts, resulting in substantial transfers away from consumers. However, there is some evidence that the auction market is more efficient when there are three or more bidders.



Offer Price Information and the Exercise of Market Power: The Effect of the Publication of the Historical Trading Report on Competition in the Alberta Electricity Market

Derek E. H. Olmstead, Matthew J. Ayres, and Peter B. R. Lomas

Year: 2020
Volume: Volume 41
Number: Special Issue
DOI: 10.5547/01956574.41.SI1.dolm
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Abstract:
This paper considers the effect of the publication of offer price information on unilateral market power in Alberta’s electricity market. This market is an hourly auction characterized by repeated interaction among a small number of producers, common knowledge of costs and production capabilities, and price inelastic demand. For the period July 13, 2000 to May 18, 2017, offer prices for each hour were published by the market operator, the Alberta Electric System Operator (AESO), in the Historical Trading Report (HTR) after the end of the hour. Using counterfactual analysis from 2010 to 2015 (52,584 hours), the paper finds that the effect of offer price changes after the HTR publication was to raise the average hourly price for electricity in Alberta by $2.48/MWh or about 4.2%, which raised the cost of electricity for Alberta consumers during the six-year period by approximately $1.14 billion. Based on an earlier version of this paper, the AESO was instructed by Alberta’s utilities regulator to cease publication of the HTR.





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