An Empirical Analysis of The New York Independent System Operator's Transmission Congestion Contract Market: Speculator and Hedger Transaction Characteristics, Competition, and Profit

Open Access
Toole, Cameron John
Graduate Program:
Energy and Mineral Engineering
Master of Science
Document Type:
Master Thesis
Date of Defense:
May 29, 2014
Committee Members:
  • Andrew Nathan Kleit, Thesis Advisor
  • Transmission congestion contract
  • New York Independent System Operator
  • speculation
  • hedging
  • locational based marginal pricing
The Transmission Congestion Contract (TCC) Market was initiated concurrently with the rollout of competitive electricity markets to provide buyers and sellers of wholesale electricity a means to hedge the locational price risk associated with their physical transactions. Procured through an auction process managed by the New York Independent System Operator (NYISO), these financial instruments known as transmission congestion contracts (TCCs) have become heavily traded by speculators. Increased market liquidity supposedly achieved by allowing speculation comes at a cost equal to the profits earned by speculators. Ultimately, ratepayers bear the cost of profits paid to speculators. This study analyzed NYISO TCC data during the years 2008-2013 and developed statistical models to identify speculator and hedger transaction characteristics. Estimates of net profit earned by known speculators and measures of liquidity provided by speculators were determined. We used auction awards data to develop a probability model to evaluate correlations between number of winning bidders and contract characteristics. Finally, Ordinary Least Squares regression is used to postulate profit drivers of TCCs. This analysis concludes that speculators may be earning substantial profits from subsets of intra-zonal TCCs not commonly used for hedging. Furthermore, we found a lack of multiple winning bidders with the same injection and withdraw nodes due to a vast number of possible TCC endpoint combinations.