Essays on Market Impacts of Natural Gas Pipeline Expansion and Cross-Product Manipulation in Electricity Markets
Open Access
- Author:
- Guo, Nongchao
- Graduate Program:
- Energy and Mineral Engineering
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- March 15, 2018
- Committee Members:
- Chiara Lo Prete, Dissertation Advisor/Co-Advisor
Chiara Lo Prete, Committee Chair/Co-Chair
Andrew N. Kleit, Committee Member
Mort D. Webster, Committee Member
Uday V. Shanbhag, Outside Member - Keywords:
- Natural Gas Pipelines
Electricity Markets
Market Manipulation
Equilibrium Models
Welfare - Abstract:
- This dissertation explores market impacts of natural gas pipeline expansion and cross-product manipulation in electricity markets. With the surge of production of natural gas in the Marcellus region of Pennsylvania, several expansion projects have been proposed to address the scarcity of pipeline capacity out of the region. Chapter 1 focuses on one of these projects, Williams Company’s Atlantic Sunrise project. A fine-grained spatial model based on the arbitrage cost approach is developed to study the potential economic impacts of the project. Over the 30-month period examined, we estimate that consumers from Alabama to New Jersey would have enjoyed about $3.0 billion in total benefits because of the expansion, while producers would have lost about $1.3 billion. Chapter 2 and 3 look into virtual transactions and cross-product manipulation in wholesale electricity markets in the U.S. Virtual transactions are financial positions that allow market participants to exploit arbitrage opportunities arising when day-ahead electricity prices are predictably higher or lower than expected real-time prices. Unprofitable virtual transactions may be used to move day-ahead prices in a direction that enhances the value of related positions, like financial transmission rights (FTRs). This constitutes cross-product manipulation, and has emerged as a central policy concern of the Federal Energy Regulatory Commission in recent years. Chapter 2 presents a three-stage equilibrium model in a two-node setting to study cross-product manipulation in two-settlement energy markets. Chapter 3 extends the equilibrium model by incorporating a network with loop flows and generator unit commitment problems. Numerical results from the two-node system in Chapter 2 show that uneconomic bidding at the FTR contract sink is an equilibrium strategy for financial trader, if the gains from FTRs exceed the losses from virtual bids. This strategy further diverges the day-ahead price from its expected real-time level at the node being manipulated. Moreover, the trader has a greater incentive to do so as the day-ahead demand becomes more inelastic. Chapter 3 shows that uneconomic bidding could take place at nodes other than the FTR sink. This is because, when loop flows are introduced, price separation between the source and sink of the FTR path can be induced by congestion of transmission lines different from the FTR path. Since uneconomic manipulation increases the day-ahead prices at certain nodes, a higher fracture of capacity from generators located at these nodes will be dispatched, resulting in higher commitment costs for these generators.