It's the Grid, Stupid!

 

 

Bank of America's recent request to FERC to be allowed to trade power was yet one more reminder that a whole new class of companies are quietly positioning themselves to dominate what's left of the energy trading space after the departure of traders like Enron and Aquila.

Grid system operators now hold the cards. That means a bidding war for talent and a new wave of mergers.

TBy issuing new rules for a Standard Market Design (SMD) for wholesale power, the Federal Energy Regulatory Commission (FERC) in all likelihood will usher in a new wave of utility mergers. But the pattern will differ from what we have seen in recent years.

The deals will center on the transmission sector, and take a horizontal shape, rather than vertical.

Why hedging can make sense, even for companies covered by weather-normalized rates.

Weather risk management is growing, but utilities may be losing out.

A recent survey suggests that the number of transactions involving financial derivatives to hedge weather-related risks grew by 43 percent against the prior year for the twelve months ended March 31.¹ Yet regulated utilities continue to show reluctance to embrace weather derivatives.

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?

The new CROs are bringing back much-needed discipline to restore investor confidence.

Scott Smith's title is senior vice president and chief risk officer. But when he's out of earshot, some people at AEP call him the chief SOB.

"I'm not a popular guy," Smith says half-jokingly. "I continually get comments about what a pain I am. My people are aggressive and they don't take any crap."

Off Peak

 

September 15 , 2002

 

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Glenn P. Barba has been elected vice president and controller of Consumers Energy. He joined the utility in 2001 as controller. Previously, he served as controller for CMS Generation. Before joining CMS Generation in 1997, Barba spent nine years in public accounting, with a focus on the energy industry. Consumers Energy also named Kim D. Morris, a 20-year human resources veteran at the company, as human resources director for Consumers Energy's generating plants.