New legislation would tackle the most difficult problem (em low load factors for small-volume customers.
We commend the Natural Gas Competition and Deregulation Act, SB 215, passed by...
In fact, gas price fluctuations during the winter of 1996-97 prompted customers to ask for fixed-price options, even as pilot programs emerged for retail choice. Some regulators answered that wish, sometimes despite objections from the industry.
In New York, for example, Consolidated Edison Co. joined with Enron to oppose mandated fixed-price offerings. The utility predicted "confusion," while Enron claimed that a fixed-price option "distorts price signals" and would prove to be "a major hindrance" to competition. Regulators in New Jersey encouraged more conservative procurement practices, though it forces customers at risk to miss out on gas price savings. (See sidebar, "Low Price vs. Fixed Price.")
Primed for Cross Hedging?
Last month, the New York Mercantile Exchange submitted two new electricity futures contracts (and two options contracts) for approval by the Commodity Futures Trading Commission. %n8%n One futures contract would be delivered at the Cinergy Control Area; the other at Entergy. (See sidebar, "NYMEX to the Rescue?")
These two proposals follow on the heels of the Minneapolis Grain Exchange, which earlier submitted electricity futures and options contracts to the CFTC, with a delivery point within a 30-mile radius of the Twin Cities, or the "TC GEN," to hedge against a cash market into the Mid-Continent Area Power Pool. %n9%n Terri Huffaker, vice president of marketing and public relations for the MGE, says the MAPP contract will offer NYMEX futures contracts at COB, Palo Verde, Cinergy and Entergy, by allowing delivery both on- and off-peak. (See sidebar.)
"Some commercial participants in the MAPP region approached us, including utilities and power marketers, asking for a risk-management vehicle. A marketer in the MAPP region really can't use the Palo Verde contract to hedge. We [MAPP] have different peaking seasons than Palo Verde."
Huffaker adds that the MGE worked with Northern States Power Co. and various MAPP-region power marketers to develop the contract. "MAPP did not work with us directly on contract design. We cannot claim we have a blanket endorsement from MAPP as an institution."
If all these new markets weren't enough to expand energy hedging opportunities, the NYMEX board of directors in January announced approval of a coal futures contract, to be launched later this year, with a trading unit of 37,200 MMBtu (heat content minimum of 12,000 Btu per pound), and a delivery point on the Ohio River between Milepost 206 and 317, or on the Big Sandy River.
Meanwhile, NYMEX had delayed filing yet another electricity futures
contract, deliverable at the PJM Interconnection. As explained by public relations officer Nachamah Jacobovits, NYMEX is waiting for the PJM companies to sort out all the trading rules for their new power pool, including the new locational marginal pricing scheme for electric transmission service approved for PJM in November by the Federal Energy Regulatory Commission, before launching a futures contract. "We're waiting to make sure that our contract reflects the cash market."
Cynthia Taylor, PJM's manager of customer relations and training, confirms the delay: "We will be implementing locational marginal pricing. There is no history for this type of market. I believe