Document Type
Article
Publication Date
9-20-2017
Department 1
Economics
Abstract
In organized energy markets that use locational pricing, power generators and energy suppliers procure financial transmission rights (FTRs) to hedge against grid con- gestion charges, while third-party speculators attempt to capture a return with these extremely volatile contracts. This paper develops a novel methodology for estimating the systematic risk of individual FTRs and detecting the presence of abnormal returns among these financial instruments. The prevalence of congestion paths with abnormal returns could be used by policy experts as an efficiency measure when assessing the performance of FTR markets. Being the only organized energy market in the Western Interconnection, California has implemented a version of FTRs officially known as congestion revenue rights (CRRs). This paper applies the proposed methodology to all auctioned CRRs from 2009 to 2015. Our analysis identifies the paths that exhibit persistent abnormal returns, with the majority of them being positive. We also compare the patterns of risk and abnormal returns between on-peak and off-peak CRRs, and find no significant differences.
Copyright Note
This is the publisher's version of the work. This publication appears in Gettysburg College's institutional repository by permission of the copyright owner for personal use, not for redistribution.
DOI
10.21314/JEM.2017.163
Version
Version of Record
Recommended Citation
Baltaduonis, Rimvydas, Samuel Bonar, John Carnes, and Erin Mastrangelo. "Risk and Abnormal Returns in Markets for Congestion Revenue Rights." Journal of Energy Markets 10, no. 3 (2017): pp.35-57.
Required Publisher's Statement
This article is also available from the Journal of Energy Markets.