A Look Upstream: Electricity Market Restructuring, Risk, Procurement Contracts and Efficiency

Corrado Di Maria, Ian Lange and Emiliya Lazarova

No 2014-12, Working Papers from Colorado School of Mines, Division of Economics and Business

Abstract: This paper analyzes theoretically and empirically how upstream markets are affected by deregulation downstream. Deregulation tends to increase the level of uncertainty in the upstream market. Our theoretical analysis predicts that deregulated firms respond to this increase in uncertainty by writing more rigid contracts with their suppliers. Using the restructuring of the electricity market in the U.S. as our case study, we find support for our theoretical predictions. Furthermore, we investigate the impact this change in procurement contracts has on efficiency. Focusing on coal mines, we find that those selling coal to plants in restructured markets are significantly more productive than their counterparts working with regulated plants. On the other hand, we also find that transaction costs may have increased as a consequence of deregulation.

Keywords: Energy Policy; Electricity Market Restructuring; Deregulation; Procurement Contracts; Risk; Efficiency (search for similar items in EconPapers)
JEL-codes: L14 L15 Q31 Q48 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2014-11
New Economics Papers: this item is included in nep-com, nep-cta, nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
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http://econbus-papers.mines.edu/working-papers/wp201412.pdf First version, 2014 (application/pdf)

Related works:
Working Paper: A Look Upstream: Electricity Market Restructuring, Risk, Procurement Contracts and Efficiency (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:mns:wpaper:wp201412

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