Measurement of Energy Market Inefficiencies in the Coordination of Natural Gas & Power

Coordination issues associated with natural gas and electricity markets have become more acute as gas penetration in the electric generation sector has grown. This paper focuses on the debate surrounding the need for coordination of market timing - a likely major challenge for both Federal and State regulators and institutions responsible for electric reliability. This paper describes the coordination problems between existing electric and gas market structures and provides a case study of the risk premium that participants in the New England day ahead electricity market would need to charge in order to account for information uncertainty in natural gas prices due to a potential change in scheduling practices. The paper concludes with an estimate of the potential price impact of these risks on Northeast market price.