Thursday, February 9, 2012

Action Baby, Action! "Electricity price gyrations boost power trading"

From the Financial Times:

One afternoon this week, an electric utility could buy wholesale power in Pennsylvania for a reasonable $30 per million megawatt hours. Just 200 miles south in Virginia, electrons cost 10 times more.

This kind of disparity happens all the time in US power markets, creating trading opportunities. A decade after the collapse of Enron, electricity has become the stamping-ground not only of utilities and merchants but hedge funds, proprietary trading groups and Wall Street banks.

Trading electricity has become more tempting as America’s natural gas boom drains excitement from that market. Gas delivered to the Henry Hub pipeline junction in Louisiana has never closed up or down by more than 10 per cent since January. By contrast, wholesale electricity in PJM western hub, a popular power market stretching from Pennsylvania to the city of Washington, routinely moves 10 per cent an hour.

“As volatility in natural gas comes down, there is a sea shift and people are focusing more on the power market,” says Mark Rzepczynski, chief executive of the funds group at FourWinds Capital Management, which invests in commodity hedge funds...MUCH MORE