This dissertation uses recently developed empirical methodologies for the study
of multi-unit auctions to test the impacts of Financial Transmission Rights (FTRs)
on the competitiveness of restructured electricity markets. FTRs are a special type
of financial option that hedge against volatility in the cost of transporting electricity
over the grid. Policy makers seek to use the prices of FTRs as market signals to
incentivize efficient investment and utilization of transmission capacity. However,
prices will not send the correct signals if market participants strategically use FTRs.
This dissertation uses data from the Texas electricity market to test whether the
prices of FTRs are efficient to achieve such goals. The auctions studied are multiunit,
uniform-price, sealed-bid auctions.
The first part of the dissertation studies the auctions on the spot market of the
wholesale electricity industry. I derive structural empirical models to test theoretical
predictions as to whether bidders fully internalize the effect of FTRs on profits into
their bidding decisions. I find that bidders are learning as to how to optimally bid
above marginal cost for their inframarginal capacities. The bidders also learn to bid
to include FTRs into their profit maximization problem during the course of the first
year. But starting from the second year, they deviated from optimal bidding that
includes FTRs in the profit maximization problems. Counterfactual analysis show that the primary effect of FTRs on market outcomes is changing the level of prices
rather than production efficiency. Finally, I find that in most months, the current
allocations of FTRs are statistically equivalent to the optimal allocations.
The second part of the dissertation studies the bidding behavior in the FTR
auctions. I find that FTRs?? strategic impact on the FTR purchasing behavior is
significant for large bidders ?? firms exercising market power in the FTR auctions.
Second, trader forecasts future FTR credit very accurately while large generators??
forecasts of future FTR credit tends to be biased upward. Finally, The bid shading
patterns are consistent with theoretical predictions and support the existence of
common values.
| Identifer | oai:union.ndltd.org:tamu.edu/oai:repository.tamu.edu:1969.1/2688 |
| Date | 01 November 2005 |
| Creators | Zang, Hailing |
| Contributors | Puller, Steven L. |
| Publisher | Texas A&M University |
| Source Sets | Texas A and M University |
| Language | en_US |
| Detected Language | English |
| Type | Book, Thesis, Electronic Dissertation, text |
| Format | 442757 bytes, electronic, application/pdf, born digital |
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