a game theoretic approach for optimal time of use electricity pricing demand for electricity varies throughout the day increasing the average cost of power supply time of use tou pricing has been proposed as a demand side management dsm method to influence user demands in this paper we describe a game theoretic approach to optimize tou pricing strategies gt tou we propose models of costs to utility companies arising from user demand fluctuations and models of user satisfaction with the difference between the nominal demand and the actual consumption we design utility functions for the company and the users and obtain a nash equilibrium using backward induction in addition to a single user type scenario we also consider a scenario with multiple types of users each of whom responds differently to time dependent prices numerical examples show that our method is effective in leveling the user demand by setting optimal tou prices potentially decreasing costs for the utility companies and increasing user benefits an increase in social welfare measure indicates improved market efficiency through tou pricing

the demand elasticity impacts on the strategic bidding behavior of the electricity producers due to the oligopoly structure of the electricity markets and to the constraints imposed by the transmission network the producers may exert market power by strategically bidding higher than their marginal costs this brings market performance far from the perfect competition equilibrium with higher market clearing price and extra surpluses obtained by the producers demand elasticity can significantly affect the market performance contributing to mitigate the strategic bidding behavior of the producers compared to other commodity markets demand elasticity in the electricity markets is low but even a small increase can result in appreciable improvement of the market performance the network constraints of the power system play a specific role in determining the oligopoly equilibrium of the gaming behavior of the electricity producers the model of supply function equilibrium is first applied to a simple three bus test system for a conceptual analysis and then to a standard ieee 30 bus test system the effects of an increase of demand elasticity are assessed resorting to a set of proper quantitative indexes

sequential bargaining as a noncooperative foundation for walrasian equilibrium allocation are weakly preferred to those obtainable from the initial endowments by means of the given set of net trades these conditions are similar to ones studied by schmeidler and vind 1972 and vind 1978 but here they are thought of as characterizing the set of net trades available in steady state equilibria of market games like those studied by douglas gale 1984 1985 1986a 1986b and 1986c the characterization result is used as a key step in the proof of results like gale s the allocations induced by steady state equilibria are walrasian for the economy given by the constant flow of new agents into the market our approach generalizes the one followed in gale 1986c and allows us to dispense with assumptions made in previous treatments for example gale s 1986a assumption of dispersed characteristics is dropped we also demonstrate that such a result depends on the assumption that agents cannot observe the past behavior of agents with whom they trade

allocating priority with auctions an experimental analysis there are many examples of markets where resources that were allocated ex ante must be rationed ex post two alternative methods of rationing are considered in this paper priority service see chao and wilson american economic review 77 1987 and wilson econometrica 57 1989 and proportional rationing see spulber international economic review 33 1992 an experimental environment is developed in which the two rules are implemented within two well known institutions the english and the uniform price sealed bid auctions under two different information conditions we find that priority service generates more efficient allocations than proportional rationing and the sealed bid auction performs better than the english both mechanisms and rationing rules are more efficient when there is a lack of common information

uniqueness of market equilibrium on a network a peak load pricing approach abstract in this paper we establish conditions under which uniqueness of market equilibrium is obtained in a setup where prior to trading of electricity transmission capacities between different market regions are fixed in our setup firms facing fluctuating demand decide on the size and location of production facilities they make production decisions constrained by the invested capacities taking into account that market prices partially reflect scarce transmission capacities between the different market zones for this type of peak load pricing model on a network we state general conditions for existence and uniqueness of the market equilibrium and provide a characterization of equilibrium investment and production the presented analysis covers the cases of perfect competition and monopoly the case of strategic firms is approximated by a conjectural variations approach our result is a prerequisite for analyzing regulatory policy options with computational multilevel equilibrium models since uniqueness of the equilibrium at lower levels is of key importance when solving these models thus our paper contributes to an evolving strand of literature that analyzes regulatory policy based on computational multilevel equilibrium models and aims at taking into account individual objectives of various agents among them not only generators and customers but also e g the regulator deciding on network expansion

effect of inter temporal factors on the real time pricing of electricity a rigorous theoretical framework for the solution of the price formation and optimal dispatch problems taking into account intertemporal dependence of demand under spot and dynamic tariffs is presented the case in which a common tariff is to be applied to all customers is examined the difference in system response for spot and day ahead dynamic tariffs is illustrated simulation examples of a variety of event types are provided

optimal pricing in electrical networks over space and time an electrical system is modelled with a transmission network customers central generators and independent generators the system is subject to stochastic failures and stochastic demand parameters optimal spot prices are derived for the system they vary stochastically with space and time and depend on electrical load flow patterns the price difference between two locations or two voltage levels and the wheeling charge between them will change magnitude and sometimes sign over time as a function of events throughout the network current spatial pricing methods are significantly different from the spot price based methods derived here

limit theorems for markets with sequential bargaining this paper models trade as a non coopertative strategic game played at an inlinite sequence of dates a single indivisible commodity is traded buyers and sellers have transferable utility and are characterized by their reservation utilities they meet at random and bargain over the price at which a single unit of the good will be exchanged under a variety of circumstances it is shown that as the costs of search and bargaining become negligible the outcome of the game converges to the competitve flow equilibrium even when there is complete information journal of economic literature classification numbers 022 19x7

decentralized trading strategic behaviour and the walrasian outcome for a market with a finite number of agents pairwise matching and bargaining it is shown that even when the market is frictionless the equilibrium is not necessarily competitive it depends on the amount of information agents use if their behaviour is conditioned only on the sets of agents present and the time the competitive solution is the unique subgame perfect equilibrium if agents have full information and condition their behaviour on some of it there are also noncompetitive equilibria in which behaviour depends on specific information such as the identity of the trading partner and past events

interruptible electric power service contracts abstract a two period model is considered in period 1 the electric power company offers for sale a set of contracts 1 p 1 2 p 2 each consumer must select one contract k and d units of energy for which she pays p k d the company must deliver d units of energy in period 2 with probability k the service may be interrupted with the complementary probability 1 k the problem is to design the optimal set of contracts to maximize social welfare when demand and supply may be random and when customers suffer a welfare loss due to service interruption the best design is shown to be a solution to an optimal control problem the results contrast sharply with previous work on the problem of pricing electric power in the face of random supply or demand

demand response with locational dynamic pricing to support the integration of renewables abstract electricity production from centralised and decentralised renewable energy resources in europe is gaining significance resulting in operational challenges in the electricity system although these challenges add to the locational and time dependency of the underlying cost of operating the system this variability in time and location is not reflected in residential tariff schemes consequently residential users are not incentivised to react to varying system conditions and to help the integration of renewable energy resources therefore this paper provides a theoretical framework for designing a locational dynamic pricing scheme this can be used to assess existing tariff structures for consumption and injection and can serve as a theoretical background for developing new tariff schemes starting from the underlying costs this paper shows that the potential for locational dynamic pricing depends on the locational and time dependency of its cost drivers when converting costs into tariffs the tariff design should be determined this includes the advance notice of sending tariffs to users and the length of price blocks and price patterns this tariff design should find a balance between tariff principles related to costs practicality and social acceptability on the one hand and the resulting demand response incentive on the other

time of use rates vs hopkinson tariffs redux an analysis of the choice of rate structures in a regulated electricity distribution company abstract recent proposals to restructure the electricity industry in north america may effect the disintegration of a vertically integrated company into several smaller entities including distribution companies discos we explore whether time of use tou pricing or a hopkinson tariff would be more suitable for a regulated disco focusing on the economic efficiency of these alternative rate structures we argue that a hopkinson tariff with demand subscription is superior to tou rates as it can better handle the limited load diversity of local transmission and distribution td demands made on the contemporary disco while finessing the problem of endogenous marginal costs of local td capacity

optimal pricing of non utility generated electric power the importance of an optimal pricing policy for pricing nonutility generated power is pointed out in this paper an optimal pricing policy leads to benefits for all concerned the utility industry and the utility s other customers in this paper it is shown that reliability differentiated real time pricing provides an optimal nonutility generated power pricing policy from a societal welfare point of view firm capacity purchase and hence an optimal price for purchasing firm capacity are an integral part of this pricing policy a case study shows that real time pricing without firm capacity purchase results in improper investment decisions and higher costs for the system as a whole without explicit firm capacity purchase the utility makes greater investment in capacity addition in order to meet its reliability criteria than is socially optimal it is concluded that the nonutility generated power pricing policy presented in this paper and implied by reliability differentiated pricing policy results in social welfare maximizing investment and operation decisions

developing marginal costs for real time pricing the authors describe an approach for forecasting day ahead hourly costs for real time pricing of electricity marginal costs have two components marginal operating costs and marginal outage costs the approach for estimating marginal operating costs is a modification of techniques developed for security constrained dispatch the approach for marginal outage costs involves estimating the economic damages associated with outages as well as the load related probability that an outage will occur data problems and procedures required for model validation are also addressed

controlling electricity consumption by forecasting its response to varying prices in a real time electricity pricing context where consumers are sensitive to varying prices having the ability to anticipate their response to a price change is valuable this paper proposes models for the dynamics of such price response and shows how these dynamics can be used to control electricity consumption using a one way price signal estimation of the price response is based on data measurable at grid level removing the need to install sensors and communication devices between each individual consumer and the price generating entity an application for price responsive heating systems is studied based on real data before conducting a control by price experiment using a mixture of real and synthetic data with the control objective of following a constant consumption reference peak heating consumption is reduced by nearly 5 and 11 of the mean daily heating consumption is shifted

security of electricity supply at the generation level problem analysis abstract since the very beginning of the restructuring process back in 1982 in chile the ability of an electricity market to provide the system with the required level of security of supply has been put into question the mistrust on the ability of the market left to its own devices to provide sufficient generation availability when needed is more and more leading to the implementation of additional regulatory mechanisms this matter is undoubtedly gaining importance and it has taken a key role in the energy regulators agendas in this paper we revisit this discussion under the light of thirty years of electricity market experience we analyze the different reasons why although ideally the market is supposed to provide itself an adequate security of supply at the generation level this result is still far from being achieved in practice

investment in electricity networks with transmission switching we consider the application of dantzig wolfe decomposition to stochastic integer programming problems arising in the capacity planning of electricity transmission networks that have some switchable transmission elements the decomposition enables a column generation algorithm to be applied which allows the solution of large problem instances the methodology is illustrated by its application to a problem of determining the optimal investment in switching equipment and transmission capacity for an existing network computational tests on ieee test networks with 73 nodes and 118 nodes confirm the efficiency of the approach

reform of the electricity supply industry in britain an assessment of the development of public policy abstract several countries have been trying gradually to increase competition in electricity supply but britain has just taken a radical step with this aim a vertically integrated administered structure has been replaced by one that is more market based in particular electricity generation and transmission have been separated policy proceeded in four steps the commitment to privatise structural reform establishment of the regulatory framework and decisions on contractual arrangements this paper discusses difficulties that arose as policy developed and argues that the complexities of market failure problems in electricity supply were underestimated initially some lessons for policymakers elsewhere are suggested

competitive behavior in market games evidence and theory we explore whether competitive outcomes arise in an experimental implementation of a market game introduced by shubik 1972 market games obtain pareto inferior strict nash equilibria in which some markets are closed we find that subjects do not coordinate on autarkic nash equilibria but favor more efficient nash equilibria in which all markets are open as the number of subjects participating in the market game increases the nash equilibrium they achieve approximates the associated walrasian equilibrium of the underlying economy motivated by these findings we investigate theoretically whether evolutionary forces lead to walrasian outcomes in market games we introduce a strong version of evolutionary stable strategies sess f orfinite populations our concept requires stability against deviations by coalitions of agents a small coalition of trading agents is sufficient for pareto improving trade to be generated in addition provided that agents lack market power nash equilibria corresponding to approximate competitive outcomes constitute the only approximate sess

the effect of demand elasticity on security prices for the poolco and multi lateral contract models optimum power flows and security constrained power flows assume that customer demand is a fixed quantity in the new competitive environment it is necessary to assume that demand is elastic and will vary as a function of price a critical element in any competitive model whether it be a poolco or a multi lateral contract model is for a system operator to ensure reliability and feasibility of the power system operating point security pricing for feasibility was first advanced by schweppe et al for the case of line flow constraints for a poolco model using geometry this paper generalizes the approach to include any security constraint for a general competitive model the paper discusses interpretations of security pricing and its possible implementation in energy management systems

endogenous strategic business cycles this paper examines an overlapping generations version of the shapley shubik market game we show existence of equilibria for the simple one commodity model and analyze the dynamics of the equilibrium trajectories generated in the model because of the non linearities generated by strategic interaction of agents in the model we find that complex and chaotic equilibrium dynamics are possible in this model for a much broader range of preferences than those for which grandmont econometrica53 no 5 1995 995 1045 found complicated dynamics in the perfectly competitive version of this model these results then provide an alternative to the usual technology based explanation for the historical fact that business cycles became an important economic phenomenon only with the onset of industrialization journal of economic literatureclassification numbers c72 c73 d51 l16

an empirical analysis of implicit delivery options in the treasury bond futures contract abstract assuming perfect frictionless and efficient markets this paper develops a framework to estimate the composite value of the quality wild card and end of month options implicit in the t bond futures contract the value of delivery options is shown to be the excess of forward price of the cheapest bond over its conversion factor times the exercise price of futures contract empirical results indicate that the option values over the last quarter of the nearby contract are on average less than 0 5 percent of the mean futures price which is substantially lower than the value reported by previous studies further scrutiny reveals that although the empirical estimates are contaminated by non synchronous bond data they are consistent with certain known theoretical properties of option values

using game theory to analyze electric transmission pricing policies in the united states abstract us public policy towards the private electric power industry is moving away from restrictive regulation and towards promotion of competition alternative policies concerning access to and pricing of transmission are now being discussed similar issues may arise in europe as trade barriers fall our purpose is to show how game theory can help illuminate that debate and identify desirable policies game theory models are used to estimate the possible effects of various policies upon productive efficiency and the distribution of gains among sellers transmitters and buyers of power static cooperative models are used to calculate the possible outcomes of short run transmission games long run games in which the amount of transmission capacity is a decisition variable are modeled as dynamic noncooperative stackelberg games one conclusion is that under some conditions price regulation and mandatory access could hurt power buyers by removing incentives for building transmission capacity another conclusion is that under a system of voluntary access and price regulation it may be better to allow wheeling prices to exceed the marginal cost of transport rather than to risk losing the benefits of cooperation

benefits and challenges of electrical demand response a critical review advances in it control and forecasting capabilities have made demand response a viable and potentially attractive option to increase power system flexibility this paper presents a critical review of the literature in the field of demand response providing an overview of the benefits and challenges of demand response these benefits include the ability to balance fluctuations in renewable generation and consequently facilitate higher penetrations of renewable resources on the power system an increase in economic efficiency through the implementation of real time pricing and a reduction in generation capacity requirements nevertheless demand response is not without its challenges the key challenges for demand response centre around establishing reliable control strategies and market frameworks so that the demand response resource can be used optimally one of the greatest challenges for demand response is the lack of experience and the consequent need to employ extensive assumptions when modelling and evaluating this resource this paper concludes with an examination of these assumptions which range from assuming a fixed linear price demand relationship for price responsive demand to modelling the highly diverse distributed and uncertain demand response resource as a single centralised negative generator adopting fixed characteristics and constraints

the stop loss start gain paradox and option valuation a new decomposition into intrinsic and time value the downside risk in a leveraged stock position can be eliminated by using stop loss orders the upside potential of such a position can be captured using contingent buy orders the terminal payoff to this stop loss start gain strategy is identical to that of a call option but the strategy costs less initially this article resolves this paradox by showing that the strategy is not self financing for continuous stock price processes of unbounded variation the resolution of the paradox leads to a new decomposition of an option s price into its intrinsic and time value when stock price follows geometric brownian motion this decomposition is proven to be mathematically equivalent to the black scholes 1973 formula article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the delivery option on forward contracts many futures contracts contain a delivery option which allows the short position a choice to deliver one of several varieties of a commodity several authors have argued that deliv ery options can have considerable value for a forward contract with a delivery option this paper shows that a continuously adjusted hedge will drive the value of the delivery option towards zero assuming perfect and frictionless markets tract the option to deliver one of several grades of a commodity on the delivery date recent papers by garbade and silber 3 and gay and manaster 4 have examined this delivery option and have suggested that this option reduces the futures price prior to the delivery date this paper examines a perfect market with continuous prices with an infinite number of deliverable varieties with ac tive forward markets for all deliverable varieties and without marking to market under these assumptions the value of the delivery option is shown to ap proach zero the paper shows that a continuously adjusted hedge exists that guarantees this result therefore the attachment of value to the delivery option

utility experience with real time rates the structure of electric utilities is undergoing far reaching changes as new and expanded service options are added the concepts of unbundling or of priority service are expanding the options open to customers spot pricing or real time pricing of electricity provides the economic structure for many of these new service options it is frequently stated that customers cannot adapt to real time prices the authors identify the elements of real time rates and existing rate structures in the united states and other oecd countries which incorporate these dimensions

market uncertainty correlated and sunspot equilibria in imperfectly competitive economies first version received june 1988 final version accepted november 1990 eds an imperfectly competitive economy is very prone to market uncertainty including uncertainty about the liquidity or thickness of markets we show in particular that there exist stochastic equilibrium outcomes in nonstochastic market games if and only if the endowments are not pareto optimal we also provide a link between extrinsic uncertainty arising in games e g correlated equilibria and extrinsic uncertainty in market economies e g sunspot equilibria a correlated equilibria to the market game is either a sunspot equilibrium or a non sunspot equilibrium to the related securities games but the converse is not true in general

a continuous time equilibrium model of forward prices and futures prices in a multigood economy abstract this paper is a theoretical investigation of equilibrium forward and futures prices we construct a rational expectations model in continuous time of a multigood identical consumer economy with constant stochastic returns to scale production using this model we find three main results first we find formulas for equilibrium forward futures discount bond commodity bond and commodity option prices second we show that a futures price is actually a forward price for the delivery of a random number of units of a good the random number is the return earned from continuous reinvestment in instantaneously riskless bonds until maturity of the futures contract third we find and interpret conditions under which normal backwardation or contango is found in forward or futures prices these conditions reflect the usefulness of forward and futures contracts as consumption hedges

the british electricity experiment the privatization of the electricity supply industry esi in britain which began 1990 is in itself an unremarkable event much of the esi is privately owned in several european countries and in the united states and the u k privatization program has embraced utilities since 1984 when british telecom was privatized the thing that is remarkable about recent policy toward the industry is the radical nature of the regulatory reform accompanying privatization a vertically integrated administered generation and transmission structure was replaced overnight on march 31 1990 by one that is deintegrated and market based generation and transmission have been separated and there has been an attempt to establish competition in generation a number of countries have been moving gradually in the direction of encouraging competition but nowhere else have such dramatic changes been implemented so quickly

uniform marginal pricing for the remuneration of distribution networks a new method for distribution access via uniform pricing for the remuneration of distribution networks is presented the proposed approach merges in a unified framework the investments the optimal network operation requirements the effect of the price elasticity of demand and the application of hourly pricing for demand side management purposes hourly uniform marginal prices understood as tariffs of use of the network are obtained from maximum social welfare condition sending efficient signals to the utility and consumers related to the optimal operation of the grid and use of the energy at peak and valley hours this method is used in the context of a performance based ratemaking regulation to get model companies from operational optimized real networks capital fees are integrated in the marginal tariff of use by means of the new replacement value concept broadly used in yardstick competition the model is stated as a mixed integer linear optimization problem suitable to be solved through well known linear programming tools the methodology has been successfully tested in a 42 bus test distribution network

optimal real time pricing of real and reactive powers this paper presents a theory and simulation results of real time pricing of real and reactive powers that maximizes social benefit conventional studies represented the responses of consumers as demand functions and the objective of optimization was minimization of operating cost of power system in this paper the responses of consumers are represented as the inverse of the demand functions and power flow equations are incorporated in the constraints this makes it possible to incorporate constant power factor demand consumer as a participant that also makes it possible to maximize the objective function of optimization that is social benefit of participating in the electricity market and to determine the price of electricity at each bus not only the real time price of real power but also that of reactive power is determined simultaneously by the incorporation of power factor of loads into the constraint of optimization

the delivery option on forward contracts a comment livingston contends that short futures long cash traders can eliminate the potential costs of the quality option through use of a dynamic trading strategy it is proposed here that if this is possible then futures prices will never reach a stable equilibrium alternatively if livingston s argument is flawed then no risk free arbitrage opportunities are likely to be available to either short cash long futures or long cash short futures traders under such conditions futures prices will reach an equilibrium when the expected return and risk of each type position are equally attractive

impact on real and reactive power pricing in open power market using unified power flow controller transmission pricing is an important issue in view of increased deregulation a nonlinear optimization problem has been formulated to maximize the social welfare in the open power market using a unified power flow controller upfc in this paper with a static point of view congestion management installation of upfc requires a two step approach first the proper location of these devices in the network must be ascertained and then the settings of its control parameters optimized for the required objective nodal spot prices for both real and reactive powers have been computed using optimal power flow solutions and the impact of upfc on the spot pricing have been studied the effectiveness of the proposed methods is demonstrated on a test system

an ex post valuation of the quality option implicit in the treasury bond futures contract abstract this paper develops three empirical estimates of the value of the quality delivery option implicit in the treasury bond futures contract a an ex ante value as given by the excess of forward price of the cheapest to deliver bond over its conversion factor times the futures price b an ex post value equal to the payoffs to a strategy of buying and holding a short futures long forward position at the start and delivering the cheapest bond at the expiration of futures contract and c another ex post value equal to the sum of payoffs to a continuous rollover strategy involving a short futures long forward position in the cheapest to deliver bonds three months prior to delivery the average values of the three estimates are 464 329 and 2 075 respectively the differences among the three estimates appear to be largely due to nonsynchronous spot futures data

the quality delivery option in treasury bond futures contracts this paper uses three methods to estimate quality option values for cbot treasury bond futures contracts it presents evidence regarding 1 payoffs from exercising this option at delivery 2 estimates from a t bond futures pricing model that incorporates this option and 3 estimates obtained from an exchange option pricing formula the results indicate that this option is worth considerably less than reported by kane and marcus 1986a for example payoffs obtained by switching from the bond cheapest to deliver three months prior to delivery to the one cheapest at time of delivery average less than 0 30 percentage points of par

management of multiple congested conditions in unbundled operation of a power system this paper studies congestion management based on congestion pricing as may be done by an independent power system operator four main concepts are discussed congestion pricing can lead to the same solution as an optimal power flow pricing need not have cost information available good estimates of nonlinear cost coefficients are necessary and pricing for congestion management is separable from pricing for the purpose of transmission network revenue reconciliation emphasis is on the determination of sufficient information by observation of the behavior of the market to permit optimum pricing without explicit communication among parties and without generators ever being explicitly concerned about the relief of flow congestion results from simulated experiments are presented

forward contracts and futures contracts abstract this paper provides a detailed discussion of the similarities and differences between forward contracts and futures contracts under frictionless markets and continuous trading simple arbitrage arguments are invoked to value forward contracts to relate forward prices and spot prices and to relate forward prices and futures prices we also argue that forward prices need not equal futures prices unless default free interest rates are deterministic

resale markets and the assignment of property rights the consumption of an indivisible good causes identity dependent externalities to non consumers we analyse resale markets where the current owner designs the trading procedure but cannot commit to future actions we ask the following questions 1 doer the identity of the initial owner matter for the determination of the final consumer 2 is the outcome always efficient the major conclusion of our paper is that the irrelevance of the initial structure of property rights arises in resale processes even if there are transaction costs that hinder efficiency this result complements the coasian view where the irrelevance of the assignment of property rights is a consequence of efficiency

efficient and competitive rationing abstract the contracts that interest us here are called priority service contracts the salient feature of such contracts is that they specify each customer s priority in obtaining service that is they specify the tank order in which a customer is served out of the available supply until all customers are served or supply is exhausted such contracts essentially establish queues for customers in section 1 the author provides some background about priority service section 2 formulates a basic model and offer several illustrations also describes two main examples that motivate the theoretical development section 3 derives some key results that show how the prices of priority service contracts are designed to induce customers to self select efficient service orders in section 4 the author discusses various ways that state enterprises can organize markets that implement priority service efficiently in section 5 we study the operation of competitive markets for priority service section 6 concludes with some summary remarks two themes are emphasized one is that a state enterprise can promote substantial efficiency gains by substituting priority service for absent spot markets the other is that oligopolistic firms may have insufficient incentives to offer efficient product diversity consequently allocative efficiency depends on entry of numerous firms even so dispersal of supplies among many firms can prevent productive efficiency when there are advantages from pooling supplies

a review of the value of aggregators in electricity systems abstract distributed energy resources ders are being adopted throughout the world aggregators are lauded by some as critical in enabling ders to provide these valuable electricity services at scale in this light regulatory and policy bodies are discussing the role of aggregators and even the need to support their market entry in order to shed light on the economically efficient regulation of aggregators in electricity systems this paper systematically assesses the economic fundamentals of aggregators we perform a critical review of the value of aggregators defining the factors that determine their role in power systems under different technological and regulatory scenarios we identify three categories of value that aggregators may create fundamental transitory and opportunistic fundamental value is intrinsic to aggregation and is independent of the market or regulatory context transitory value can be significant in the near term but may be diminished by technological or regulatory advances finally opportunistic value emerges as a result of regulatory or market design flaws and may endanger the economic efficiency of the power system this paper provides a template for regulators to encourage the efficient development of aggregators while eliminating the potential for economic inefficiencies through opportunistic aggregation

reliability differentiated real time pricing of electricity optimal resource planning and power dispatch models from a societal welfare point of view imply an optimal pricing policy which is referred to here as reliability differentiated real time pricing or in short reliability differentiated pricing this pricing scheme combines real time pricing and priority pricing with reliability differentiation based on consumer outage costs this pricing policy is analyzed the model used in the analysis is developed with particular emphasis on consumer behavior and welfare effects the implications of the model for the pricing of spinning reserve and firm capacity as well as for revenue reconciliation are examined it is concluded that such a pricing scheme will in general result in greater attainable welfare than either the real time pricing or priority pricing paradigms moreover it results in the maximum attainable welfare for the system with revenue reconciliation and provides an optimal pricing scheme for spinning revenue and firm capacity

merit order effects of renewable energy and price divergence in california s day ahead and real time electricity markets abstract we answer two policy questions 1 what are the estimated merit order effects of renewable energy in the california independent system operator s caiso s day ahead market dam and real time market rtm and 2 what causes the hourly dam and rtm prices to systematically diverge the first question is timely and relevant because if the merit order effect estimates are small california s renewable energy development is of limited help in cutting electricity consumers bills but also has a lesser adverse impact on the state s investment incentive for natural gas fired generation the second question is related to the efficient market hypothesis under which the hourly rtm and dam prices tend to converge using a sample of about 21 000 hourly observations of caiso market prices and their fundamental drivers during 12 12 2012 04 30 2015 we document statistically significant estimates p value 0 01 for the dam and rtm merit order effects this finding lends support to california s adopted procurement process to provide sufficient investment incentives for natural gas fired generation we document that the rtm dam price divergence partly depends on the casio s day ahead forecast errors for system loads and renewable energy this finding suggests that improving the performance of the caiso s day ahead forecasts can enhance trading efficiency in california s dam and rtm electricity markets

real time pricing with ramping costs a new approach to managing a steep change in electricity demand in many countries electricity demand increases very steeply during the morning hours and decreases steeply during the evening hours a steep change in electricity demand incurs considerable costs for ramping up and down electric power equipment and raises the possibility of a large scale blackout this paper gives new insights into classical real time pricing rtp by considering the case in which demand changes very steeply we generalize the concept of the ramping costs and derive an extended form of rtp that achieves the optimal rate of change in quantity demanded by explicitly taking the ramping costs into account under the optimal pricing policy the prices are dramatically reduced during the period corresponding to the lower end of the slope of the load curve in contrast the prices are dramatically raised during the period corresponding to the upper end of the slope of the load curve as a result the steepness of the load curve will be remarkably controlled which will reduce both the ramping costs and the possibility of a large scale blackout

a bilevel model for electricity retailers participation in a demand response market environment abstract demand response programmes are seen as one of the contributing solutions to the challenges posed to power systems by the large scale integration of renewable power sources mostly due to their intermittent and stochastic nature among demand response programmes real time pricing schemes for small consumers are believed to have significant potential for peak shaving and load shifting thus relieving the power system while reducing costs and risk for energy retailers this paper proposes a game theoretical model accounting for the stackelberg relationship between retailers leaders and consumers followers in a dynamic price environment both players in the game solve an economic optimisation problem subject to stochasticity in prices weather related variables and must serve load the model allows the determination of the dynamic price signal delivering maximum retailer profit and the optimal load pattern for consumers under this pricing the bilevel programme is reformulated as a single level milp which can be solved using commercial off the shelf optimisation software in an illustrative example we simulate and compare the dynamic pricing scheme with fixed and time of use pricing we find that the dynamic pricing scheme is the most effective in achieving load shifting thus reducing retailer costs for energy procurement and regulation in the wholesale market additionally the redistribution of the saved costs between retailers and consumers is investigated showing that real time pricing is less convenient than fixed and time of use price for consumers this implies that careful design of the retail market is needed finally we carry out a sensitivity analysis to analyse the effect of different levels of consumer flexibility

energy pricing under uncertain supply abstract this paper introduces a new pricing system based on the chilean tariff regulations to deal with an uncertain energy supply it consists of a basic rate for each unit actually consumed and a compensation that the utilities pay their customers for each unit of energy that they voluntarily reduce below their normal consumption during an energy shortage within the framework of a model that portrays the stylized facts of the chilean electric system and assumes risk neutral agents this paper shows the equivalency of the new pricing system with both contingent pricing and priority pricing

economic dispatch of demand response balancing through asymmetric block offers this paper proposes a method of describing the load shifting ability of flexible electrical loads in a manner suitable for existing power system dispatch frameworks the concept of an asymmetric block offer for flexible loads is introduced this offer structure describes the ability of a flexible load to provide a response to the power system and the subsequent need to recover the conventional system dispatch algorithm is altered to facilitate the dispatch of demand response units alongside generating units using the proposed offer structure the value of demand response is assessed through case studies that dispatch flexible supermarket refrigeration loads for the provision of regulating power the demand resource is described by a set of asymmetric blocks and a set of four blocks offers is shown to offer cost savings for the procurement of regulating power in excess of 20 for comparative purposes the cost savings achievable with a fully observable and controllable demand response resource are evaluated using a time series model of the refrigeration loads the fully modeled resource offers greater savings however the difference is small and potentially insufficient to justify the investment required to fully model and control individual flexible loads

a critical assessment of the different approaches aimed to secure electricity generation supply abstract since the very beginning of the power systems reform process one of the key questions posed has been whether the market of its own accord is able to provide satisfactory security of supply at the power generation level or if some additional regulatory mechanism needs to be introduced and in the latter case which is the most suitable approach to tackle the problem this matter is undoubtedly gaining importance and it has taken a key role in the energy regulators agendas in this paper we critically review and categorize the different approaches regulators can opt for to deal with the problem of guaranteeing or at least enhancing security of supply in a market oriented environment we analyze the most relevant regulatory design elements throughout an updated assessment of the broad range of international experiences highlighting the lessons we have learned so far in a variety of contexts based on the analysis we conclude by providing a set of principles and criteria that should be considered by the regulator when designing a security of supply mechanism

demand responses of korean commercial and industrial businesses to critical peak pricing of electricity abstract dynamic pricing of electricity is receiving growing attention as a key enabler of the smart grid and a solution for promoting grid resilience to increasing penetration of renewable sources despite various dynamic pricing programs are contemplated and actively implemented by utilities in many developed economies corporate decision makers are not aware of the extent to which their businesses can adapt to the programs and its associated risks and opportunities this study investigates the demand response of commercial and industrial businesses to the korean critical peak pricing pilot which was implemented in the winter of 2013 the demand responses of 802 businesses covering 34 commercial and industrial categories are evaluated and characterized by constructing their individual baseline loads the results resoundingly confirm substantial differences in demand response across and within the segments with the magnitude of response closely correlated with the firms expenditure shares of electricity it is thus suggested that conventional business classification is not sufficient enough to characterize firms demand response to dynamic pricing plans calling for firm level data based approaches to consumer segmentation and electricity services this study also identifies two important types of response behavior to which due attention has not been paid shortterm learning effect that is the demand responsiveness increasing with cpp event experiences and seemingly inefficient behavior of preparatory and recovering reductions in off peak hours neighboring critical peak hours

difference systems in financial futures markets many financial futures markets allow substitutions for the par grade of security at delivery substitutes are deliverable at premiums or discounts differences in commodities parlance to the futures price the rule that establishes these differences is called a difference system this paper characterizes financial futures market equilibrium with yield based difference systems and investigates particular systems in use the major finding is that currently used difference systems effectively limit deliverable supply in the futures markets and lead to futures prices which understate the cash market price of the par security in order to increase deliverable supply many financial futures markets allow the delivery of a variety of grades issues of securities in fulfillment of a financial futures contract the par grade of security on which the futures contract is based is deliverable at the futures price various other grades of securities are deliverable at premiums or discounts to the futures price in commodities parlance these premiums and discounts are called differences and the rule that establishes the set of premiums and discounts is called a difference system see hoffman 2 chapter xv for an excellent discussion of difference systems in commodity futures contracts there are two types of difference systems currently in use in financial futures markets both are based on security yields the first is called variable rate or yield maintenance pricing under this system nonpar securities are deliverable at the futures price times a factor which is the price of the delivered security relative to the par security where both are discounted by the yield of the par security selling at the futures price the second is called fixed rate or factor pricing under this system nonpar securities are deliverable at the futures price times a factor which is the price of the delivered security relative to the par security where both are discounted at the yield of the par security selling at par this paper first characterizes financial futures market equilibrium with yieldbased difference systems and then investigates theoretically and empirically the particular characteristics of factor pricing and yield maintenance pricing the major finding is that currently used differences systems produce financial futures prices which systematically understate the spot market price of the par security vice president chicago mercantile exchange this research was conducted while the author was economist financial studies section board of governors of the federal reserve system the opinions in this paper are those of the author and do not necessarily reflect the opinions of the board

the costs of wheeling and optimal wheeling rates wheeling is the transmission of electrical energy from a buyer to a seller through a transmission network owned by a third party this paper provides a theoretically sound yet practical to implement basis for setting wheeling rates these wheeling rates are based on marginal costs determined by losses and effects of line flow and voltage magnitude constraints adjusted up or down as necessary to account for embedded capital costs i e revenue reconciliation simple numerical examples are provided to illustrate interesting phenomena such as negative wheeling rates which yield positive net revenue comparisons with present day wheeling rates show that major differences exist the wheeling rates of this paper yield a no lose situation for the buying selling and wheeling utilities

the effects of renewables in space and time a regime switching model of the italian power price abstract renewable energy production can exercise a downward pressure on electricity prices by partly crowding out conventional units characterized by higher marginal costs merit order effect yet congestion induced by renewables would partly offset the merit order effect in the congested zone unless renewables reduce the need for imports and allow the emergence of prosumers these congestion effects of renewables are hereby jointly tested with the merit order effect by means of an endogenous regime switching model wherein a regime corresponds to the observable status congested non congested of the grid the model is taken to data from the italian power exchange observed in 2012 and 2013 with a focus on the line connecting sicily with the south zone a frequent bottleneck in the italian transmission grid the results confirm the merit order effect previously detected in the literature and highlight a negative congestion effect i e renewables relieve congestion from sicily a systematic importer but not from the italian peninsula the exporting region this effect is mainly driven by the wind power in feed

electricity tariffs under imperfect knowledge of participant benefits the authors consider the problem of establishing tariffs for electrical energy under uncertainty about the value of the energy to the participants a tariff update that achieves welfare maximization asymptotically through successive approximations to the ideal tariff is proposed the successive update of the tariff avoids the need for accurate a priori knowledge of electricity system demand and generation as a function of price the key results are a tariff update algorithm and a proof of local convergence two necessary steps for implementation of practical responsive pricing

effect of demand management on regulated and deregulated electricity sectors abstract our society derives a quantifiable benefit from electric power in particular forced outages or blackouts have enormous consequences on society one of which is loss of economic surplus the society relies on having a continuous supply of electrical energy some customers may willingly risk this continuous supply and participate in demand management programs for electrical power if the power system grid is in trouble electric utilities need to have demand relief customers willing to reduce their demand to help the system can receive an incentive fee for helping the utilities demand relief can be system wide or location specific sometimes it can be more effective to fix the electrical demand vs supply imbalance from the demand side the value of demand management contracts is greatly affected by customer location inclusion of locational attributes into the contract design procedure increases the effectiveness of the contracts by helping a utility get more value from its demand management programs independent system operators and regulators among others can also benefit from effective demand management this paper will investigate how this type of demand management contracts can help the electricity sector both in regulated and deregulated environments

efficient coordination of wind power and price responsive demand part ii case studies in part ii of this paper we demonstrate on a modified 24 bus ieee reliability test system rts that it is indeed possible to manage large scale intermittent resources in coordination with price responsive demand the algorithms introduced in part i of this paper are simulated assuming 20 and 50 wind capacity we show that the look ahead dispatch of the proposed method is physically implementable and when used with elastic demand can accommodate the integration of close to 50 wind capacity this is contrasted with the observation that without elastic demand 50 wind integration is not physically implementable from the perspective of total market surplus the predictive dispatch of the proposed method is 3 8 suboptimal when compared to the centralized most efficient predictive economic dispatch further simulations are needed to test the feasibility of coordinating wind power and price responsive demand on realistic large scale power systems

quality option profits switching option profits and variation margin costs an evaluation of their size and impact on treasury bond futures prices this paper provides empirical evidenee that the quality option in f bond futures is much less valuable than previously indicated in addition a dynamic trading strategy involving multiple switches of the cash bonds held in a long cash versus short futures position is shown to produce substantially greater profits than the single exercise of the quality op tion these findings suggest that the optimal management of long cash short futures positions is likely to involve dynamic trading strategies while passive strategies appear more appropriate for short cash long futures positions it is also shown that required variation margin payments are frequently large and may impact the profitability and risk of such positions to a greater extent than either of these options further evidenee is given indicating that observed t bond futures prices reflect an imputed value for the options and risks inherent in such positions

on delegating price authority to a regulated firm this article models a regulatory environment in which the regulated firm possesses better information about demand conditions than does the regulator the regulator would like to tie prices to the firm s private information in a socially optimal way to do so the regulator must induce the firm either truthfully to reveal private information or equivalently unilaterally to set socially optimal prices this is accomplished by assessing lump sum subsidies or taxes that depend in an appropriate way on the prices announced by the firm this mechanism can be reinterpreted as a two part tariff scheme whereby both the service fee and price per unit respond to shifting demand conditions

a battle of informed traders and the market game foundations for rational expectations equilibrium abstract potential manipulation of prices and convergence to rational expectations equilibrium is studied in a game without noise traders informed players with initially long and short positions bulls and bears seek to manipulate consumer expectations in opposite directions in equilibrium period 1 prices reveal the state so manipulation is unsuccessful bears and uninformed consumers sell up to their short sale limits in period 1 bulls buy in period 1 but receive arbitrage losses when the number of bulls and bears approaches infinity the equilibrium converges to the ree without short sale constraints there is a non revealing equilibrium but no revealing equilibrium

dynamic tariffs theory of utility consumer interaction the general theoretical models of dynamic tariffs such as spot pricing are extended to include the issues of optimal response of industrial consumers and the effect of large scale penetration of these tariffs on the utility load curve applications oriented theoretical consumer and utility models are integrated for the purpose of establishing an overall systems approach to the behavior and interaction of the participants in a dynamic tariff environment a systematic analysis of the effect of significant consumer response on the system load curve is undertaken a methodologically sound approach to system load and price forecasting is presented

on the properties of nodal price response matrix in electricity markets we establish sufficient conditions for nodal price response matrix in electric power system to be symmetric and negative semi definite the results are applicable for electricity markets with nonlinear and intertemporal constraints

retrading in market games when agents are not price takers they typically cannot obtain an efficient real location of resources in one round of trade this paper presents a non cooperative model of imperfect competition where agents can retrade allocations consistent with edgeworth s idea of recontracting we show a there are pareto optimal allocations including competitive equilibrium allocations that can be approximated arbitrarily closely when trade is myopic i e when agents play a static nash equilibrium at every round of retrading b any converging sequence of allocations generated by myopic retrading can be supported along some retrade proof subgame perfect equilibrium path when traders anticipate future rounds of trading

the relation between forward prices and futures prices abstract this paper consolidates the results of some recent work on the relation between forward prices and futures prices it develops a number of propositions characterizing the two prices these propositions contain several testable implications about the difference between forward and futures prices many of the propositions show that equilibrium forward and futures prices are equal to the values of particular assets even though they are not in themselves asset prices the paper then illustrates these results in the context of two valuation models and discusses the effects of taxes and other institutional factors

implicit auctioning on the kontek cable third time lucky implicit auctioning in europe is about eliminating cross border trade inefficiencies by internalizing crossborder trade into the day ahead auction procedures of the power exchanges that are already organizing trade nationally on the kontek cable implicit auctioning has first been implemented with no coupling between the relevant power exchanges followed by a volume coupling implementation and finally a one way price coupling implementation that is still operational today the main contribution of this paper is to compare the theoretical properties of these three implementations and to analyze their performance empirically we find that the third implementation is significantly outperforming the previous two implementations but in this third implementation stakeholders partly abandoned the volume coupling approach they initially believed to be a viable alternative and institutionally easier to implement

managing water supply shortage interruption vs pricing abstract supply shortage is a common problem faced by a consumer solutions for allocating the limited supply include rationing queuing interruption and pricing while previous research has examined the welfare losses generated by each solution there is little evidence on their relative magnitudes within a common framework the objective of this paper is tospecify a model of consumer behaviour under service interruption to estimate the exact welfare loss of service interruption the same model is used to estimate the loss of a price increase intended to resolve a supply shortage using water consumption data collected for hong kong we find that relative to pricing service interruption is inefficient for water shortage management

demand shifting bids in energy auction with non convexities and transmission constraints the major objective of this paper was to propose clearing and pricing models suitable for demand shifting bids in the efficient but non convex pool based auction complex generators offers bring non convexities into the efficient auctions due to e g start up costs and times this paper focused on the responsive demands introducing simple yet adequate linear constraints into a multi period bid offer based optimal power flow opf dc model as the standard locational marginal prices lmps may not support the auction outcomes due to non convexities uplifts are needed to reduce generators loss previous work has developed a minimum uplift pricing model that directly optimizes prices so that uplifts arising from generators profit suboptimality and simple elastic demands benefit suboptimality are minimized this work extended the mixed integer linear programming milp formulation of the previous model to incorporate new linear constraints defining benefit suboptimality of demand shifting bids furthermore the transmission constrained market was attempted as a result the buyers were protected against over curtailment moreover prices complemented with minimum uplifts were fair for both generators and demands the models were validated on the literature based cases including ieee rts 24 node 24 hour system

liquid markets and competition abstract a market is liquid if no individual s actions have a big effect on the prices of goods traded in that market perfectly competitive markets are therefore perfectly liquid it is well known that market liquidity can be achieved by increasing the number of traders so that individual trades are small compared to total trades we show that even when there are only few traders market liquidity can be achieved through large short sales in which net trades are small relative to gross trades in particular for a natural variant of the market game which permits unlimited short sales we show that there is always a nash equilibrium allocation arbitrarily close to a competitive equilibrium allocation of course not all ne are near competitive only the large short sales ne are nearly liquid and hence close to ce