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Opportunity Cost Pass-through from Fossil Fuel Market Prices to Procurement Costs of the U.S. Power Producers

Yin Chu (), J Holladay () and Jacob LaRiviere
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Yin Chu: Zhongnan University of Economics and Law

No 2017-02, Working Papers from University of Tennessee, Department of Economics

Abstract: This paper investigates the transmission of fossil fuel commodity spot market price changes to procurement costs of U.S. power producers. We measure and compare the speed and magnitude with which spot prices predict procurement costs using restricted access fuel price data. Natural gas spot prices are quickly reflected in procurement costs. Coal spot prices offer very little predictive power to coal procurement costs. Although not causal, the empirical results also show differences across regulatory status. These findings may have implications for the electricity market deregulation literature that creates marginal cost curves as a competitive benchmark.

Keywords: electric power industry; fossil fuel market; pass-through; deregulation; asymmetric price adjustment (search for similar items in EconPapers)
JEL-codes: D40 L51 L94 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-reg
Date: 2017-02
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