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The Efficient Design of Contracts To Purchase Cogenerated Powers

Edward C Hall and John E. Parsons

Year: 1990
Volume: Volume 11
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No2-6
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Abstract:
This paper analyzes long-term power purchase contracts between an electric utility and a cogenerating facility and suggests ways to improve them. It discusses the best way to construct the contract payment structure in light of the given avoided cost structure; analyzing in detail the harmful incentives to low maintenance and how to avoid them. The paper concludes that the method it describes can be used to aid in the better design of contract provisions that will remedy the problem of incentives to low maintenance.



Alternative Models of Uncertain Commodity Prices for Use with Modern Asset Pricing Methods

Malcolm P. Baker, E. Scott Mayfield, and John E. Parsons

Year: 1998
Volume: Volume19
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol19-No1-5
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Abstract:
This paper provides an introduction to alternative models of uncertain commodity prices. A model of commodity price movements is the engine around which any valuation methodology for commodity production projects is built, whether discounted cash flow (DCF) models or the recently developed modern asset pricing (MAP) methods. The accuracy of the valuation is in part dependent on the quality of the engine employed. This paper provides an overview of several basic commodity price models and explains the essential differences among them. We also show how futures prices can be used to discriminate among the models and to estimate better key parameters of the model chosen.



The Weak Tie Between Natural Gas and Oil Prices

David J. Ramberg and John E. Parsons

Year: 2012
Volume: Volume 33
Number: Number 2
DOI: 10.5547/01956574.33.2.2
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Abstract:
Several recent studies establish that crude oil and natural gas prices are cointegrated. Yet at times in the past, and very powerfully in the last two years, many voices have noted that the two price series appear to have “decoupled”. We explore the apparent contradiction between these two views. We find that recognition of the statistical fact of cointegration needs to be tempered with two additional points. First, there is an enormous amount of unexplained volatility in natural gas prices at short horizons. Hence, any simple formulaic relationship between the prices will leave a large portion of the natural gas price unexplained. Second, the cointegrating relationship does not appear to be stable through time. The prices may be tied, but the relationship can shift dramatically over time. Therefore, although the two price series may be cointegrated, the confidence intervals for both short and long time horizons are large. Keywords: Oil price, Natural gas price, Cointegration





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