Electricity pricing and regulation

Abstract

This work aims to assess the development of competition in the electricity industry of England and Wales, emphasising one of the key elements of the restructured industry, the pool - a centralised day ahead electricity spot market. The pool's structure is examined, along with the relationship that the pool has with the market for electricity forward contracts. However, the key to this work is the relationship between the major electricity generators and the industry's regulator. This is introduced through two theoretical models, and undertaken through a series of econometric models using pool prices, forward prices, electricity demand, and the sharep rices of the major generators: National Power and Powergen. The work tests the hypotheses put forward by Green( 1992) and Helm & Powell (1992) of an inverse relationship between the volume of output that a generator sells forward through contracts and the general level of pool prices. The break-up of the first and second sets of forward contracts - which expired in 1991 and 1993 - and their impact on pool prices are assessed By using the market model, this work examines the impact of a series of both regulatory and nonregulatory events on the share returns of National Power and Powergen. Given the existence of spot and forward markets for electricity, one would expect a relationship between the prices in these markets The relationship is examined for England and Wales by a synthetic data set that approximates the prices at which the contracts were sold. The relationship is then examined using actual and forecast electricity prices for California, this latter analysis forming part of an overview of electricity deregulation in America. Ultimately, this research hopes to add to the growing amount of material on energy privatisation - a topic that continues to promote interest and controversy in academic and industrial circles.