Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Electronic Trading: Toward a Mature Power Market

Fortnightly Magazine - November 15 1997

such as exists in the West, with the Palo Verde [Arizona] and California-Oregon border hubs. Her guess is that another hub will emerge by next summer: if not on the East Coast, then perhaps in Kansas City.

Trading and managing a commodity requires a different mind-set than purchasing power for immediate transmission and use. "Many utilities are not only very ignorant but also don't know what they don't know," Kase explains. Nevertheless, Kase says she expects to see the electric industry begin to pay a lot more serious attention to risk management and energy trading. The number of utility executives and power traders attending her courses and speeches at conferences has increased noticeably in the past year or so, she says.

A new report from Price Waterhouse World Energy Group, Critical Issues in Energy Risk Management, also notes a "clear trend toward greater use of risk management techniques" in the energy industry. The report continues: "Increased competition between energy providers has narrowed profit margins. If energy companies hope to gain a competitive advantage, [then] they must improve not only their risk management services for customers, but their expertise in managing the increased market risk of their own portfolios."

Constellation Power Source "is designed as a company that meets customers' energy requirements," according to Shivery, which "typically means that eventually power has to be delivered to that customer." But, he adds, "It's also a company designed to make money1/4 and we do that by meeting the needs of our customers essentially on a national basis. We may buy electricity in Carolina and sell it in Ohio. We can make money doing that. [By contrast] the utility has no need to buy electricity in Carolina and sell it in Ohio. The utility has a responsibility to meet its load in its service territory. And it does that by generating itself or by buying from someone else1/4 the most efficient way that it can."

Electric restructuring, Shivery continues, marks "just the next step in that evolution of moving from regulated to competitive industries. With that change comes the realization that the marketplace in which energy companies will deal will be different. And it means that energy companies have to change themselves in order to be successful in a very changing environment. CPS is just one of those changes [BG&E] made in order to continue being a successful company in a changing environment. I like the way this company is moving."

Let's Make a Deal

One of the top power marketers, based on volume, is LG&E Energy Marketing. The company was created earlier this year by the consolidation of LG&E Natural (a natural gas trading and risk-management unit) and LG&E Power Marketing (which, as a subsidiary of investor-owned LG&E Energy Corp., was one of the first utility-affiliated power marketers to be licensed by the FERC in 1994). The group is now headquartered in Louisville, Ky. Thirty to 40 traders deal not only in wholesale electricity and natural gas, but also in coal and emission allowances, 24 hours a day.

LG&E uses the New York Mercantile Exchange