nep-ene New Economics Papers
on Energy Economics
Issue of 2005‒09‒17
two papers chosen by
Roger Fouquet
Imperial College, UK

  1. The effect of oil price on industrial production and on stock returns By Ramón Cobo-Reyes; Gabriel Pérez Quirós
  2. Wealth Transfers from Implementing Real-Time Retail Electricity Pricing By Severin Borenstein

  1. By: Ramón Cobo-Reyes (Department of Economic Theory and Economic History, University of Granada); Gabriel Pérez Quirós (Bank of Spain)
    Abstract: This paper analyzes the relationship between oil price shocks and the industrial production and between oil price shocks and the stock returns. The objective is to study which relationship is stronger or which variables reacts more rapidly to changes in oil price. We develop a Markov switching model assuming that there exits a latent variable (the state of the economy) which determines the mean of industrial production and the volatility of stock returns. The results show that raises in oil price affects in a negative and statistically significant way to stock returns and to industrial production, but the effect on stock returns is stronger than on industrial production.
    Keywords: oil price, Markov switching models.
    JEL: E32 E37 C32
    Date: 2005–08–05
  2. By: Severin Borenstein
    Abstract: Adoption of real-time electricity pricing — retail prices that vary hourly to reflect changing wholesale prices — removes existing cross-subsidies to those customers that consume disproportionately more when wholesale prices are highest. If their losses are substantial, these customers are likely to oppose RTP initiatives unless there is a supplemental program to offset their loss. Using data on a random sample of 636 industrial and commercial customers in southern California, I show that RTP adoption would result in significant transfers compared to a flat-rate tariff. When compared to the time-of-use rates (simple peak/offpeak tariffs) that these customers already face, however, the transfers drop by nearly half; even under the more extreme price volatility scenario that I examine, 90% of customers would see changes of between a 9% bill reduction and a 14% bill increase. Though customer price responsiveness reduces the loss incurred by those with high-cost demand profiles, I also demonstrate that this offsetting effect is unlikely to be large enough for most customers with costly demand patterns to completely offset their lost cross-subsidy. The analysis suggests that adoption of real-time pricing may be difficult without a supplemental program that compensates the customers who are made worse off by the change. I discuss how "two-part RTP" programs, which allow customers to purchase a baseline quantity at regulated TOU rates, can reduce the transfers associated with adoption of RTP.
    JEL: L9
    Date: 2005–09

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