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Opportunity Cost Pass†Through from Fossil Fuel Market Prices to Procurement Costs of the U.S. Power Producers

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  • Yin Chu
  • J. Scott Holladay
  • Jacob LaRiviere

Abstract

This paper investigates the transmission of fossil fuel commodity spot market price changes to procurement costs of U.S. power producers. We measure and compare the speed and magnitude with which spot prices predict procurement costs using restricted access fuel price data. Natural gas spot prices are quickly reflected in procurement costs. Coal spot prices offer very little predictive power to coal procurement costs. Although not causal, the empirical results also show differences across regulatory status. These findings may have implications for the electricity market deregulation literature that creates marginal cost curves as a competitive benchmark.

Suggested Citation

  • Yin Chu & J. Scott Holladay & Jacob LaRiviere, 2017. "Opportunity Cost Pass†Through from Fossil Fuel Market Prices to Procurement Costs of the U.S. Power Producers," Journal of Industrial Economics, Wiley Blackwell, vol. 65(4), pages 842-871, December.
    • Handle: RePEc:bla:jindec:v:65:y:2017:i:4:p:842-871
    DOI: 10.1111/joie.12146
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    Cited by:

    1. Jonathan E. Hughes & Ian Lange, 2020. "Who (Else) Benefits From Electricity Deregulation? Coal Prices, Natural Gas, And Price Discrimination," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1053-1075, July.
    2. Rebecca J. Davis & J. Scott Holladay & Charles Sims, 2022. "Coal-Fired Power Plant Retirements in the United States," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 3(1), pages 4-36.
    3. Chu, Yin & Gao, Juanxia & Li, Haoyang, 2023. "Wind power expansion and regional allocative efficiency among fossil-fuel electricity generators," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    4. Alexander Hill, 2023. "Price freezes and gas pass-through: an estimation of the price impact of electricity market restructuring," Journal of Regulatory Economics, Springer, vol. 63(1), pages 87-116, April.

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