Power Prices Today: Growing More Unpredictable

Deck: 
Even the volatility is volatile. And that can play havoc with hedging.
Fortnightly Magazine - October 1 2002
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Even the volatility is volatile. And that can play havoc with hedging.

Jeff Skilling resigned from Enron over a year ago-after power prices in markets serving California had fallen 90 percent in three months.

But in July, Bank of America won approval from the Treasury Department to offer cash-settled electricity derivatives-with a former Enron regional director at the head of the desk.

So what has changed, and what hasn't?

Well, power prices, for one. Some may believe they are quieter now, than when California imploded. But more predictable? Hardly.

If anything, power prices are becoming even less predictable, as if they ever were. To explain, let's consider an overly simplified fictitious example that shows where we've been and where we're going.

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