Bi-directional causality in Californiaʹs electricity and natural-gas markets

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 Californiaʹs 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 Californiaʹs 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.