Bi-directional causality in California's electricity and natural-gas markets

✍ Scribed by Chi-Keung Woo; Arne Olson; Ira Horowitz; Stephen Luk

• Publisher: Elsevier Science
• Year: 2006
• Tongue: English
• Weight: 264 KB
• Volume: 34
• Category: Article
• ISSN: 0301-4215
• DOI: 10.1016/j.enpol.2005.02.016

✦ Synopsis

The Granger instantaneous-causality test is applied to explore the potential causal relationships between wholesale electricity and natural-gas prices in California. The test shows these relationships to be bi-directional, and reveals California's electricity and natural-gas markets to be as inextricably intertwined as casual observation and theoretical considerations would suggest they ought to be. This meshing of markets exacerbated the effects of California's natural-gas crisis on the contemporaneous electricity crisis, while concurrently the electricity crisis may have contributed to the dysfunction in the national-gas market and helped to precipitate the natural-gas crisis. The finding supports an integrated approach, as opposed to a piecemeal approach, for formulating energy policy recommendations, not just in California but in the world at large.