Benchmarks

Deck: 
Fortnightly Magazine - September 15 2001
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Benchmarks






We were engaged in a lively discussion on energy procurement strategies in Memphis earlier this spring when cell phones started ringing. Corporate energy managers representing companies with major operations in California were getting frantic calls from staff in the Golden State concerned with getting power now! One manager sighed, "Our energy bills are growing every month, summer's not even here yet. … And now they're shutting off our power with almost no warning."

Slim reserve margins in the Northeast and escalating natural gas prices across the country added to the mounting financial risk this group was exposed to. Some chose to sign long-term agreements for power, locking in prices that looked attractive at the time. But summer has arrived, demand is lower than expected, and market prices have even forced officials in California to sell back some of their "firm" power at a loss.

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