Abstract
Helm and Powell (1992) [ Fiscal Stud. 13 (1) 89–105] proposed that the break-up of the first set of contracts for differences (ie financial forward contracts) for electricity which were instituted at privatization between the generators and the regional suppliers led to a structural break in the underlying relationship between the demand for and the price of electricity. They found that this break-up led to a marked increase in prices due to the interdependency between the electricity pool (spot market) and the contract market (forward market). This study replicates and augments the work of Helm and Powell by expanding their data set in order to examine the break-up of the second set of contracts for differences in March 1993 and its effects on electricity prices [this was also expanded by Gray et al (1996) ( The UK Energy Experience: A Model or a Warning? Imperial College Press, London]. By utilizing the methodology of Helm and Powell (1992), it is found that the dissolution of this second set of contracts had a similar effect on the relationship between prices and demand. This supports the view that the contract market should be made more open and subjected to more rigorous examination due to its effects on pool prices.
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