Efficiency of Financial Transmission Rights Markets in Centrally Coordinated Periodic Auctions

18 Pages Posted: 5 Jan 2010 Last revised: 6 Sep 2012

See all articles by Seabron Adamson

Seabron Adamson

affiliation not provided to SSRN

Thomas H. Noe

University of Oxford - Said Business School; University of Oxford - Balliol College; Bank of Finland; European Corporate Governance Institute

Geoffrey Parker

Dartmouth College

Date Written: March 15, 2010

Abstract

Electricity market design in the United States is increasingly dominated by locational marginal pricing (LMP) of energy and transmission. LMP markets are typically coupled with periodic auctions of financial transmission rights (FTRs) to hedge transmission price risks. While LMP designs offer considerable advantages, forward price discovery in these markets requires participants to form efficient expectations on spot congestion price differences. In this paper, we examine trends in the efficiency of one of the early LMP markets, the New York Independent System Operator (NYISO), analyzing a panel data set of over 9000 contracts over a six-year period beginning September 2000. We show that NYISO FTR markets were inefficient in their early years, but that market participants learned to predict forward prices and thus efficiency improved for FTRs not solely within the New York City/Long Island sub-region. FTRs within this sub-region, which has a number of special characteristics, remain relatively inefficient.

Keywords: Electricity markets, locational marginal pricing, financial transmission rights, market learning, transmission congestion contracts

JEL Classification: G12, G14, P41

Suggested Citation

Adamson, Seabron and Noe, Thomas H. and Parker, Geoffrey, Efficiency of Financial Transmission Rights Markets in Centrally Coordinated Periodic Auctions (March 15, 2010). Energy Economics, 2010. Available at SSRN: https://ssrn.com/abstract=1531748

Seabron Adamson

affiliation not provided to SSRN ( email )

Thomas H. Noe

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 3BJ
United Kingdom

University of Oxford - Balliol College ( email )

Broad St
Oxford, OX1 3BJ
United Kingdom

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Geoffrey Parker (Contact Author)

Dartmouth College ( email )

Hanover, NH 03755
United States
603-646-9075 (Phone)

HOME PAGE: http://engineering.dartmouth.edu/people/faculty/geoffrey-parker

Register to save articles to
your library

Register

Paper statistics

Downloads
153
rank
180,180
Abstract Views
1,179
PlumX