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

30 Pages Posted: 20 Dec 2017

See all articles by James Scott Holladay

James Scott Holladay

University of Tennessee

Yin Chu

Zhongnan University of Economics and Law

Jacob S. LaRiviere

University of Tennessee, Chattanooga

Date Written: December 2017

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.

Suggested Citation

Holladay, James Scott and Chu, Yin and LaRiviere, Jacob S., Opportunity Cost Pass‐Through from Fossil Fuel Market Prices to Procurement Costs of the U.S. Power Producers (December 2017). The Journal of Industrial Economics, Vol. 65, Issue 4, pp. 842-871, 2017, Available at SSRN: https://ssrn.com/abstract=3090068 or http://dx.doi.org/10.1111/joie.12146

James Scott Holladay (Contact Author)

University of Tennessee ( email )

508 Stokely Management Center
Knoxville, TN 37996-0550
United States

Yin Chu

Zhongnan University of Economics and Law ( email )

No.143, Wuluo Road
Wuhan, Hubei 430073
China

Jacob S. LaRiviere

University of Tennessee, Chattanooga ( email )

Department of Philosophy & Religion (#2753)
Chattanooga, TN 37403-2598
United States

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