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A Note on Vertical Integration and Stock Ratings of Oil Companies in the U.S.

Kenneth Edwards, John D. Jackson and Henry L. Thompson

Year: 2000
Volume: Volume21
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol21-No2-7
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Abstract:
This note examines some evidence for a link between profitability of oil companies and operational vertical integration into pipelines and crude oil. All empirical specification is estimated using ordered probit. Levels of integration into pipeline and crude that maximize stock ratings are derived using recent oil company data. Integration into pipelines has a weak positive effect on the stock ratings of oil companies, and integration into crude oil has a stronger positive?effect.



Energy Efficiency Policy Puzzles

Timothy J. Brennan

Year: 2013
Volume: Volume 34
Number: Number 2
DOI: 10.5547/01956574.34.2.1
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Abstract:
Promoting energy efficiency (EE) has become a leading policy response to greenhouse gas emissions, energy dependence, and the cost of new generators and transmission lines. Such policies present numerous puzzles. Electricity prices below marginal production costs could warrant EE policies if EE and energy are substitutes, but they will not be substitutes if the energy price is sufficiently high. Using EE savings to meet renewable energy requirements can dramatically increase the marginal cost of electricity. Rejecting "rationality" of consumer energy choices raises doubts regarding cost-benefit analysis when demand curves may not reveal willingness to pay. Decoupling to guarantee constant profit regardless of use contradicts findings that incentive-based mechanisms outperform cost-ofservice regulation. Regulators may implement EE policies to exercise buyer-side market power against generators, increasing consumer welfare but reducing overall economic performance. Encouraging utilities to take over potentially competitive EE contradicts policies to separate competitive from monopoly enterprises.



Price coordination in vertically integrated electricity markets. Theory and empirical evidence

Bruno Bosco, Lucia Parisio and Matteo Pelagatti

Year: 2016
Volume: Volume 37
Number: Number 1
DOI: 10.5547/01956574.37.1.bbos
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Abstract:
We analyse vertical integration between generators and retailers in electricity markets and we discuss the implications for price decisions of the presence of asymmetric (cost) information in a simple P-A framework. We analyze a situation in which generators post supply bids taking into account the profit of the entire vertically integrated group they belong to. We then discuss the way in which the degree of vertical integration affects this bidding strategy. Using Italian electricity auction data we show how bid prices posted by a pivotal producer are significantly influenced by variables incorporating vertical integration into the econometric model.



Restructuring Revisited Part 1: Competition in Electricity Distribution Systems

Scott P. Burger, Jesse D. Jenkins, Carlos Batlle, and Ignacio J. Pérez-Arriaga

Year: 2019
Volume: Volume 40
Number: Number 3
DOI: 10.5547/01956574.40.3.sbur
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Abstract:
This paper addresses the implications of the emergence of distributed energy resources (DERs) for competition in the electricity distribution systems. The regulations on industry structures in place today were designed in an era characterized by centralized resources and relatively price inelastic demand. In light of the decentralization of the power sector, regulators and policy makers must carefully reconsider how industry structure at the distribution level affects competition, market development, and cost efficiency. We analyze the economic characteristics of distribution network owners and operators, DER owners, and aggregators and retailers. We translate the foundational theories in industrial organization and the lessons learned during the previous wave of power system restructuring to the modern context to provide insight into three questions. First, should distribution system operations be separated from distribution network ownership in order to ensure the neutrality of the DSO role? Second, should DNOs be allowed to own and operate DERs, or should DER ownership be left exclusively to competitive actors? Third, does the emergence of DERs necessitate a reconsideration of the role of competition in the provision of aggregation services such as retailing? This paper is the first part of a two-part series on competition and coordination in rapidly evolving electricity distribution systems.



Restructuring Revisited Part 2: Coordination in Electricity Distribution Systems

Scott P. Burger, Jesse D. Jenkins, Carlos Batlle, and Ignacio J. Perez-Arriaga

Year: 2019
Volume: Volume 40
Number: Number 3
DOI: 10.5547/01956574.40.3.jjen
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Abstract:
This paper addresses the mechanisms needed to coordinate vertically and horizontally disaggregated actors in electricity distribution systems. The mechanisms designed to coordinate planning, investments, and operations in the electric power sector were designed with minimal participation from either the demand side of the market or distributed energy resources (DERs) connected at distribution voltages. The emergence of DERs is now animating consumers and massively expanding the number of potential investors and participants in the provision of electricity services. We highlight how price signals - the primary mechanism for coordinating investments and operations at the transmission level - do not adequately coordinate investments in and operations of DERs with network infrastructure. We discuss the role of the distribution system operator in creating cost-reflective prices, and argue that the price signals governing transactions at the distribution level must increasingly internalize the cost of network externalities, revealing the marginal cost or benefit of an actor's decisions. Price signals considered include contractual relationships, organized procurement processes, market signals, and regulated retail tariffs. This paper is the second part of a two-part series on competition and coordination in rapidly evolving electricity distribution systems.



A Risk-Hedging View to Refinery Capacity Investment in OPEC Countries

Hamed Ghoddusi and Franz Wirl

Year: 2021
Volume: Volume 42
Number: Number 1
DOI: 10.5547/01956574.42.1.hgho
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Abstract:
Should oil-rich members of OPEC invest in the oil refinery industry? This is a crucial energy policy question for such economies. We extend theoretical models for a vertical integration strategy within an oil-producing economy, based on a risk-hedging view. The first model highlights the trade-off between return and risk-reduction features of upstream/downstream sectors. The dynamic model demonstrates the volatility of the total budgetary revenue of each sector. Our theory-guided empirical analysis shows that though the average markup in the refining sector is significantly smaller than the profits in the upstream, downstream investment can provide some hedging value. In particular, the more stable and mean-reverting refining margins provide a partial revenue cushion when crude oil prices are low. We discuss the risk-hedging feature of the refinery industry when the crude oil market faces supply versus demand shocks.





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