Park, Haesun (2005-08). Essays on price dynamics, discovery, and dynamic threshold effects among energy spot markets in North America. Doctoral Dissertation. Thesis uri icon

abstract

  • Given the role electricity and natural gas sectors play in the North American economy, an understanding of how markets for these commodities interact is important. This dissertation independently characterizes the price dynamics of major electricity and natural gas spot markets in North America by combining directed acyclic graphs with time series analyses. Furthermore, the dissertation explores a generalization of price difference bands associated with the law of one price. Interdependencies among 11 major electricity spot markets are examined in Chapter II using a vector autoregression model. Results suggest that the relationships between the markets vary by time. Western markets are separated from the eastern markets and the Electricity Reliability Council of Texas. At longer time horizons these separations disappear. Palo Verde is the important spot market in the west for price discovery. Southwest Power Pool is the dominant market in Eastern Interconnected System for price discovery. Interdependencies among eight major natural gas spot markets are investigated using a vector error correction model and the Greedy Equivalence Search Algorithm in Chapter III. Findings suggest that the eight price series are tied together through sixlong-run cointegration relationships, supporting the argument that the natural gas market has developed into a single integrated market in North America since deregulation. Results indicate that price discovery tends to occur in the excess consuming regions and move to the excess producing regions. Across North America, the U.S. Midwest region, represented by the Chicago spot market, is the most important for price discovery. The Ellisburg-Leidy Hub in Pennsylvania and Malin Hub in Oregon are important for eastern and western markets. In Chapter IV, a threshold vector error correction model is applied to the natural gas markets to examine nonlinearities in adjustments to the law of one price. Results show that there are nonlinear adjustments to the law of one price in seven pair-wise markets. Four alternative cases for the law of one price are presented as a theoretical background. A methodology is developed for finding a threshold cointegration model that accounts for seasonality in the threshold levels. Results indicate that dynamic threshold effects vary depending on geographical location and whether the markets are excess producing or excess consuming markets.
  • Given the role electricity and natural gas sectors play in the North American economy,
    an understanding of how markets for these commodities interact is important. This
    dissertation independently characterizes the price dynamics of major electricity and
    natural gas spot markets in North America by combining directed acyclic graphs with
    time series analyses. Furthermore, the dissertation explores a generalization of price
    difference bands associated with the law of one price.
    Interdependencies among 11 major electricity spot markets are examined in
    Chapter II using a vector autoregression model. Results suggest that the relationships
    between the markets vary by time. Western markets are separated from the eastern
    markets and the Electricity Reliability Council of Texas. At longer time horizons these
    separations disappear. Palo Verde is the important spot market in the west for price
    discovery. Southwest Power Pool is the dominant market in Eastern Interconnected
    System for price discovery.
    Interdependencies among eight major natural gas spot markets are investigated
    using a vector error correction model and the Greedy Equivalence Search Algorithm in
    Chapter III. Findings suggest that the eight price series are tied together through sixlong-run cointegration relationships, supporting the argument that the natural gas market
    has developed into a single integrated market in North America since deregulation.
    Results indicate that price discovery tends to occur in the excess consuming regions and
    move to the excess producing regions. Across North America, the U.S. Midwest region,
    represented by the Chicago spot market, is the most important for price discovery. The
    Ellisburg-Leidy Hub in Pennsylvania and Malin Hub in Oregon are important for eastern
    and western markets.
    In Chapter IV, a threshold vector error correction model is applied to the natural
    gas markets to examine nonlinearities in adjustments to the law of one price. Results
    show that there are nonlinear adjustments to the law of one price in seven pair-wise
    markets. Four alternative cases for the law of one price are presented as a theoretical
    background. A methodology is developed for finding a threshold cointegration model
    that accounts for seasonality in the threshold levels. Results indicate that dynamic
    threshold effects vary depending on geographical location and whether the markets are
    excess producing or excess consuming markets.

publication date

  • August 2005