Price control in long term contracts : the case of coal
Name
MIT-EL-87-011WP-19524240.pdf
Size
2.82 MB
Format
Adobe PDF
Checksum (MD5)
9d982f3ff427472a87d2ab067d13e67e
Author(s)
Joskow, Paul L.
Date Issued
1987
Publisher
MIT Energy Lab
Series/Report no.
MIT-EL
87-011WP
Abstract
A sample of coal contracts between electric utilities and coal suppliers is
used to analyze mechanisms for determining prices in long term coal contracts.
Alternative methods for determining prices in long term contracts are
discussed and the actual adjustment mechanisms specified in a set of actual
coal contracts presented. The vast majority of long term coal contracts use a
base price plus escalation or cost-plus adjustment formula. Base price
equations and subsequent transactions price equations are estimated. The
analysis shows that on average long term contracts are flexible in the sense
that prices adjust to major changes in the costs of supplying coal. However,
some pricing rigidities are found which appear to reflect the economic
conditions prevailing at the time the contracts were executed. Furthermore,
some contracts track changes in market values very poorly.
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