CEE_594_Seller_Instr_ABC_Fall071 - SELLER INSTRUCTIONS...

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S ELLER I NSTRUCTIONS Introduction This is an educational training exercise designed for students in CEE 594/ECON 494. The exercise relates to concepts covered in class on markets and market design, competition, and investment. As a participant in the exercise, you will play the role of either a firm who supplies electricity to customers, or, in later sessions, a trader of electricity who pre-purchases power in a forward market and resells it in a spot market. The decisions you make during the exercise will determine your earnings, and you will receive points towards your grade in the course in proportion of your total earnings over the course of the semester. You will maximize the points you receive by maximizing the earnings you obtain. Please do not communicate with any of the other class member outside your group about this exercise until it has been completed. General Information You are a seller that owns a single power plant. There are two other sellers with power plants similar to yours. There are many buyers who need the electricity you produce for their daily use. There are also three intermediaries who can buy electricity from you and resell it to buyers. The periods will consist of several subperiods: CAPACITY subperiod, FORWARD MARKET subperiod, and SPOT MARKET subperiod. During the CAPACITY subperiod, you can increase the capacity of your plant by constructing additional capacity. During the FORWARD MARKET subperiod, you can sell electricity which you are obligated to produce at the end of the spot market subperiod. During the SPOT MARKET subperiod, you can sell additional electricity directly to customers as long as the total amount of capacity that you produce as a result of sales you make in the forward and spot market subperiods does not exceed your capacity during the period. You will receive earnings which will increase the amount of extra credit you receive for participating in the exercise based on difference between your revenue from sales and your costs from electricity production and investment in capacity. The following terms will be used to describe your costs: Per-Unit Production Cost ($/Unit) – the production cost per unit of electricity you produced. You will incur production costs only for electricity that you produce to meet sales obligations you have made. Capacity (Unit) – the maximum amount of electricity that you can produce each period. Spot Market Quantity Offer (Unit) – the amount of electricity that you wish to sell in the spot market during the current period. Spot Market Price Offer ($/Unit) – the lowest price at which you are willing to sell electricity in the spot market during the current period. 1
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Forward Market Quantity Offer (Unit) – the amount of electricity that you wish to sell in the forward market during the current period.
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  • Fall '07
  • Forward contract, $5, Spot price, $0, spot market

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