Risk and Abnormal Returns in Markets for Congestion Revenue Rights

28 Pages Posted: 5 Apr 2017

See all articles by Rimvydas Baltaduonis

Rimvydas Baltaduonis

Gettysburg College - Department of Economics

Samuel Bonar

Government of the United States of America - Federal Energy Regulatory Commission

John Carnes

Government of the United States of America - Federal Energy Regulatory Commission

Erin Mastrangelo

Government of the United States of America - Federal Energy Regulatory Commission

Multiple version iconThere are 2 versions of this paper

Date Written: April 5, 2017

Abstract

In organized energy markets that use locational pricing, power generators and energy suppliers procure Financial Transmission Rights (FTRs) to hedge against grid congestion charges, while third party speculators attempt to capture a return with these extremely volatile contracts. The paper develops a novel methodology for estimating 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 2009-2015 period. Our analysis identifies the paths that exhibit persistent abnormal returns with the majority of them being positive. It also contrasts the patterns of risk and abnormal returns between On-Peak and Off-Peak CRRs, and finds no significant differences.

Keywords: Financial transmission right, Congestion revenue right, Hedging, Transmission, Congestion, Electricity market

JEL Classification: C58, G1, L9, Q4

Suggested Citation

Baltaduonis, Rimvydas and Bonar, Samuel and Carnes, John and Mastrangelo, Erin, Risk and Abnormal Returns in Markets for Congestion Revenue Rights (April 5, 2017). Available at SSRN: https://ssrn.com/abstract=2946987 or http://dx.doi.org/10.2139/ssrn.2946987

Rimvydas Baltaduonis (Contact Author)

Gettysburg College - Department of Economics ( email )

300 N Washington St
Campus Box 391
Gettysburg, PA 17325
United States

Samuel Bonar

Government of the United States of America - Federal Energy Regulatory Commission ( email )

881 1st Street NE
Washington, DC 20426
United States

John Carnes

Government of the United States of America - Federal Energy Regulatory Commission ( email )

881 1st Street NE
Washington, DC 20426
United States

Erin Mastrangelo

Government of the United States of America - Federal Energy Regulatory Commission ( email )

881 1st Street NE
Washington, DC 20426
United States

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