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Ramsey Pricing of Electricity Under Unknown Bypass Costs

Ira Horowitz, Dewey Seeto and Chi-Keung Woo

Year: 1996
Volume: Volume17
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol17-No2-4
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Abstract:
This paper derives Ramsey prices for the realistic situation in which bypass costs are unknown to both a regulator and an electric utility, in particular, to any useful level of precision. It is shown that the traditional inverse elasticity rule will still yield Ramsey prices that are incentive compatible. The Ramsey prices require relatively little information to implement, and we show the relevant elasticities to use. Modifications of these Ramsey prices that account for political realities are also provided.



Electricity Market Integration in the Pacific Northwest

Chi-Keung Woo, Debra Lloyd-Zannetti and Ira Horowitz

Year: 1997
Volume: Volume18
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol18-No3-4
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Abstract:
Evidence of market integration and price competition support a policy of price deregulation and open access in the electric power industry. The objective of this paper is to test the hypotheses that wholesale electricity submarkets in the Pacific Northwest region of the WSCC are integrated, and price competition exists within these integrated submarkets. To this end, we apply a bivariate cointegration test, a price-difference test and a causality test to the 1996 on-peak daily electricity prices off our submarkets in the Pacific Northwest of North America: Mid-Columbia and California-Oregon Border (COB) in the Western US, and BC/US Border and Alberta Power Pool in Western Canada. The price-difference test results support the hypothesis that the following pairs of markets are integrated: (a) BC/US Border and Mid-Columbia; (b) BC/US Border and COB; and (c) Mid-Columbia and COB. A comparison between the gross profit from price arbitrage and the posted transmission tariff indicates that price competition prevails in these market pairs, and the causality test results provide supporting evidence that price leadership does not exist in these three market pairs. Finally, a market-share analysis indicates that B. C. Hydro does not have market power in the aggregate market comprising BC/US Border, Mid-Columbia and COB.



Blowing in the Wind: Vanishing Payoffs of a Tolling Agreement for Natural-gas-fired Generation of Electricity in Texas

Chi-Keung Woo, Ira Horowitz, Brian Horii, Ren Orans, and Jay Zarnikau

Year: 2012
Volume: Volume 33
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-8
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Abstract:
We use a large Texas database to quantify the effect of rising wind generation on the payoffs of a tolling agreement for natural-gas-fired generation of electricity. We find that while a 20% increase in wind generation may not have a statistically-significant effect, a 40% increase can reduce the agreement's average payoff by 8% to 13%. Since natural-gas-fired generation is necessary for integrating large amounts of intermittent wind energy into an electric grid, our finding contributes to the policy debate of capacity adequacy and system reliability in a restructured electricity market that will see large-scale wind-generation development.Keywords: Wind generation, Tolling agreement, Spark spread option, Investment incentive



Equity in Residential Electricity Pricing

Shira Horowitz and Lester Lave

Year: 2014
Volume: Volume 35
Number: Number 2
DOI: 10.5547/01956574.35.2.1
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Abstract:
Real-time pricing of electricity is theoretically more economically efficient than flat rate pricing. However, a switch from flat-rates to real-time rates means that many consumers will lose the cross-subsidy they are receiving under the flat rate, and may see an increase in their bills even if they have elastic demand. We use hourly load data from 1260 Commonwealth Edison residential customers on a standard flat rate electricity tariff from 2007 and 2008. We calculate which customers would have been better off and which customers would not under real time pricing with both elastic and inelastic demand and look at the general characteristics of these customers. We find that if customers do not respond to prices under RTP, then only 35% of customers save money, while the remainder loses. The greatest potential for savings is from reduction in capacity costs. Keywords: Residential electricity pricing, Dynamic pricing, Real-time pricing



What Moves the Ex Post Variable Profit of Natural-Gas-Fired Generation in California?

Chi-Keung Woo, Ira Horowitz, Jay Zarnikau, Jack Moore, Brendan Schneiderman, Tony Ho, and Eric Leung

Year: 2016
Volume: Volume 37
Number: Number 3
DOI: 10.5547/01956574.37.3.cwoo
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Abstract:
We use a large California database of over 32,000 hourly observations in the 45month period of April 2010 through December 2013 to document the ex post variable profit effects of multiple fundamental drivers on natural-gas-fired electricity generation. These drivers are the natural-gas price, system loads, nuclear capacities available, hydro conditions, and renewable generation. We find that profits are reduced by increases in generation from nuclear plants and wind farms, and are increased by increases in the natural-gas price and loads. Solar generation has a statistically insignificant effect, although this will likely change as solar energy increases its generation share in California's electricity market. Our findings support California's adopted resource adequacy program under which the state's load-serving entities may sign long-term bilateral contracts with generation developers to provide sufficient revenues to enable construction of new natural-gas-fired generation plants.





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