This Law360 article discuss methodological considerations in selecting an appropriate model to estimate counterfactual prices in energy markets.
The use of factual/counterfactual comparisons—that is, estimating the difference between what actually happened and what would have happened, absent an event—is a fundamental tool in the economists’ work box in the context of contractual or regulatory disputes.
If the event being analyzed has an impact on the input or output prices of energy market participants, determining what market prices would have been absent the event is a significant challenge that calls for expert industry knowledge and associated analyses.
Such knowledge allows for the construction of robust models to parse the factual/counterfactual differences, and for understanding their impact on the recovery in contracts between involved parties or in discussions with regulators or other stakeholders.
In this article, authors Kivanç Kirgiz and Manuel Vasconcelos of Cornerstone Research and Roy Shanker, an independent consultant on energy markets, discuss some methodological considerations in creating and selecting an appropriate model to estimate counterfactual prices in energy markets.
This article was originally published by Law360 in August 2023.
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