Assignment:
Data:
The data for this assignment is collected from ComEd, as well as from the PJM Northern Illinois Hub Futures data. All data is collected as of August 8, 2018.
On the worksheet called "test", you see several columns. The legend is as follows:
"Company" is the independent electricity provider, which sells electricity to ComEd to be delivered to residential consumer. Note that ComEd passes the rate charged by the independent provider on to the sonsumer with no markup, and adds only the delivery charge.
"Offer" is the price, in cents per kWh, charged the residential consumer
"Term" is the term of the contract to which the "Offer" rate applies. For example, if Term = 6, that means the rate is locked for 6 months. If Term=1, the rate is floating, i.e. changes every month.
"Green" means whether the plan includes a charge for Renewable Energy Credits.
"Exit Fee" means that there is (1) or isn't (0) a fee if the consumer wishes to exit the contract early.
"Monthly Fee" means there is (1) or isn't (0) a fee charged per month.
"Swap" is the wholesale electricity price, in dollars per kWh, which would be paid by the independent electricity providers if they wanted to buy electricity forward for the same number of months as stated in the "Term" column. For example, if Term=6, the Swap value will tell you the price locked in the wholesale market for up to 6 months forward. If Term=1, the Swap value will tell you the floating price in the wholesale market.
Hypothesis:
The Swap rate hypothetically includes "risk premium", i.e. in order to lock in the wholesale price, the independent producers would have to pay a little bit above the consensus future expected electricity price. That extra little bit would be their payment for hedging away the risk. Furthermore, studies show that this "risk premium" increases with the term of the lock-up period.
The question you need to answer in this assignment is whether the independent producers tend to pass the risk premium onto the consumer! If they do, then "Offer" should increase with "Term" even after controlling for the other factors: "Green", "Exit Fee", "Monthly Fee", and very importantly after controlling for "Swap", too.
Assignment:
Run a multivariate OLS regression, where the dependent variable is "Offer" and the independent variables are "Term", "Green", "Exit Fee", "Monthly Fee", and "Swap."
Analyze the regression output to determine whether the slope coefficient for "Term" is positive and statistically significant.
Interpret your results. Do you see evidence that the independent electricity providers pass on the risk premium to the residential consumer? How generalizable is your evidence, given the sample size?
Attachment:- Bonus Assignment Data.rar