Get Rich in Commodities Superboom, thanx environmentalists

bone said:
From what I've seen, Wall Street has been on the shitty side when it comes to trading power and transmission. The dedicated proprietary trading firms (that's you, Houston) and the energy trading desks at utilities are far more adept at it.

I've seen (and confirmed through OTC brokers) some big name Wall Street Banks and Hedge Funds get absolutely smoked in the Inc/Dec markets.

To be really good at trading power, you need to be trading around generating assets. Otherwise you are dead meat on the table. This is why proprietary trading firms try to enter into firm power agreements and call options with generating companies. And that can be tough to do these days; was much more common in the 1990's.
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It continues to surprise me that the competitive power suppliers appear to hedge little or none of their supply. They either are in denial that there will ever be days that LMP prices go appreciably over average or they think they can pass it on to their customers, who in reality just won't pay $9,000 monthly power bills. They then go bankrupt en masse whenever an event like this happens (same with PJM in the "polar vortex" a few years ago). Merchant power has been a crappy business for a decade or more now because they can't lock in their forward power prices, while the natural forward buyers inexplicably aren't buying.

Tangentially related, I'll be interested to see how the spinoff of Exelon's merchant fleet trades once they split. Didn't go so well with FirstEnergy/FirstEnergy Solutions.
 
I'm not at all convinced that these competitive power suppliers necessarily have the financial bona fides to legitimately hedge in either the bilateral OTC market or in the financially settled exchange market. As you know, that is a substantial financial commitment. If they get caught out, it's just another LLC structure that goes out of business.

Sig said:
It continues to surprise me that the competitive power suppliers appear to hedge little or none of their supply. They either are in denial that there will ever be days that LMP prices go appreciably over average or they think they can pass it on to their customers, who in reality just won't pay $9,000 monthly power bills. They then go bankrupt en masse whenever an event like this happens (same with PJM in the "polar vortex" a few years ago). Merchant power has been a crappy business for a decade or more now because they can't lock in their forward power prices, while the natural forward buyers inexplicably aren't buying.

Tangentially related, I'll be interested to see how the spinoff of Exelon's merchant fleet trades once they split. Didn't go so well with FirstEnergy/FirstEnergy Solutions.
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bone said:
I'm not at all convinced that these competitive power suppliers necessarily have the financial bona fides to legitimately hedge in either the bilateral OTC market or in the financially settled exchange market. As you know, that is a substantial financial commitment. If they get caught out, it's just another LLC structure that goes out of business.
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You're right that most of them are significantly undercapitalized. Given my experience working with them I'm not sure it would necessarily be a bad thing if those who couldn't hedge at least a month ahead just weren't allowed to play.

Interestingly it's sounding like some of the big boys got hit pretty hard this time as well.
 
The other piece is correct FASB Hedge Accounting. My strong sense is that many of these firms would distribute the hedge profits to firm partners and distribute hedge losses to clients.

Sig said:
You're right that most of them are significantly undercapitalized. Given my experience working with them I'm not sure it would necessarily be a bad thing if those who couldn't hedge at least a month ahead just weren't allowed to play.

Interestingly it's sounding like some of the big boys got hit pretty hard this time as well.
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bone said:
The other piece is correct FASB Hedge Accounting. My strong sense is that many of these firms would distribute the hedge profits to firm partners and distribute hedge losses to clients.
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That's an interesting point.
 
Another point to consider here is that generally speaking, southern utilities and power providers would be much more inclined to hedge the summer months than the winter months.

Even in the Midwest, our winter loads would stay modest during the day, go up considerably in the evening and taper off by about 10pm. You'd have some 6am load come in that tapered off by about 9am. We did quite a bit of scheduled power plant maintenance during the winter so we bought quite a bit of forward firm blocks to cover for that. We bought less for the summer and quite frankly that was for spec :cool:. We liked to buy firm blocks and piece it out on spec.

As a side note, because I traded physical for a utility that was an ISO member - I was able to buy Emergency Power for $100/MW-hr back in the 90's. The power merchants were up shit creek having to pay several hundred or more.

So, if I lost Byron Unit 2 and was looking for 1200 Megawatts in five minutes and for all I knew I'd need it for 2 hours or 12 hours or who knows - I'd buy Emergency from AEP. No way I'd ever go to Enron or Coral for that.

Sig said:
That's an interesting point.
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Sig said:
Nigel Calder, the lifetime climate change denier who in the 80's said that by 2030 "the much-advertised heating of the earth by the man-made carbon-dioxide 'greenhouse' [will fail] to occur; instead, there [will be] renewed concern about cooling and an impending ice age"? Sure.

Literally everything you said is either demonstrably false ("the wavelength of light that is captured by CO2 is already saturated at current levels?" Seriously?) or is vastly misrepresented or misunderstood in your retelling.

Most importantly you completely ignore my point because it's clearly pretty inconvenient for you. Neither you or anyone else has the first idea of if the RATE of increase in CO2 is relevant or not. It's a massive experiment on a global scale that's never been done before, there's no way you could know. And your response is not to investigate if it might be an issue, it's to first deny its an issue based on the fact that you don't want it to be an issue, then try to shut down any investigation of if it is. If you're old enough you've seen this movie before. "Don't worry about second hand cigarette smoke, clearly it's not dangerous, because I said so. And don't actually investigate if it is dangerous, that's not necessary and in fact tramples on liberty and freedom. In fact, you can't do anything to stop second hand smoke until you PROVE it's dangerous, not the other way around."

That was monumentally stupid and it only killed a few million people. Why, again, are you proposing we take the same attitude here?
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it's cute when these armchair scientist come out, isn't it?
 
bone said:
Another point to consider here is that generally speaking, southern utilities and power providers would be much more inclined to hedge the summer months than the winter months.

Even in the Midwest, our winter loads would stay modest during the day, go up considerably in the evening and taper off by about 10pm. You'd have some 6am load come in that tapered off by about 9am. We did quite a bit of scheduled power plant maintenance during the winter so we bought quite a bit of forward firm blocks to cover for that. We bought less for the summer and quite frankly that was for spec :cool:. We liked to buy firm blocks and piece it out on spec.

As a side note, because I traded physical for a utility that was an ISO member - I was able to buy Emergency Power for $100/MW-hr back in the 90's. The power merchants were up shit creek having to pay several hundred or more.

So, if I lost Byron Unit 2 and was looking for 1200 Megawatts in five minutes and for all I knew I'd need it for 2 hours or 12 hours or who knows - I'd buy Emergency from AEP. No way I'd ever go to Enron or Coral for that.
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Always insightful background, thanks. Not sure if anyone else appreciates it since it's pretty inside baseball but I certainly do!
 
bone said:
Another point to consider here is that generally speaking, southern utilities and power providers would be much more inclined to hedge the summer months than the winter months.

Even in the Midwest, our winter loads would stay modest during the day, go up considerably in the evening and taper off by about 10pm. You'd have some 6am load come in that tapered off by about 9am. We did quite a bit of scheduled power plant maintenance during the winter so we bought quite a bit of forward firm blocks to cover for that. We bought less for the summer and quite frankly that was for spec :cool:. We liked to buy firm blocks and piece it out on spec.

As a side note, because I traded physical for a utility that was an ISO member - I was able to buy Emergency Power for $100/MW-hr back in the 90's. The power merchants were up shit creek having to pay several hundred or more.

So, if I lost Byron Unit 2 and was looking for 1200 Megawatts in five minutes and for all I knew I'd need it for 2 hours or 12 hours or who knows - I'd buy Emergency from AEP. No way I'd ever go to Enron or Coral for that.
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so boner, you were the guy who directed Texas utility companies to shut down the system for two days during the winter storm? :)

•you're competing against Uncle Buffett; he also invested in solar farms.

MAY 11, 2020 6:26 PM PT
"The Trump administration on Monday approved the largest solar installation in U.S. history, giving its blessing to a Berkshire Hathaway Inc. subsidiary’s 690-megawatt project just north of Las Vegas".

Berkshire Hathaway Energy owns the following companies:
In 2017, BHE's proposed acquisition of Oncor Electric Delivery Company LLC[14] was terminated after BHE was outbid by Sempra.[15][16]

BHE investigates producing up to 90 thousand tonnes of lithium carbonate per year (and other minerals) from its 350 MW geothermal power plants in California (Salton Sea).[17][18]
 
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