Power contracts: Disasters waiting to happen

✍ Scribed by Tvrdik, Penelope

• Publisher: John Wiley and Sons
• Year: 2007
• Weight: 682 KB
• Volume: 16
• Category: Article
• ISSN: 0743-5665
• DOI: 10.1002/gas.3410160503

✦ Synopsis

he Federal Energy Regulatory Commission T (FERC) Staff report regarding its investigation into the electricity price spikes of the summer of 1998 identified six market factors that contributed to the Midwest price spike of that year.' One of those factors, what the FERC staff called "market inexperience," is presenting a special challenge to the industry. The FERC Staff Report found that market inexperience resulted in:

Inadequate credit checks and "sleeving,"2 causing increased default risk in the market Traders' unfamiliarity with their own contract terms . Unhedged risk Supply portfolios that were "insufficiently di~ersified"~ This article will address one of these "market inexperience" issues, probing the subject of how and why traders are "unfamiliar" with their own contracts and proposing some solutions that should be adopted by the industry and by individual power marketers immediately. In an industry the size of power marketing, the "trader/ contract gap" must be focused upon and closed as quickly as possible.

. . . "'traderkontract gap" must be focused upon and closed as quickly as possible.