Power Trading Houston, Texas February 19, 2001

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Power Trading Houston, TexasFebruary 19, 2001
Texas A M Risk Management
2002

• Todd Orosco
• Sr.Director, Power Trading
• Duke Energy North America

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Topics

• Overview of Business Unit
• Role of Business Unit
• 2001 Strategy
• NERC Regions Trading Hubs
• Packages Products
• Transmission
• Decision Making Variables Demand Supply
• Q A

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Overview of Business Unit

• Hourly Trading
• Speculative Trading
• Asset Optimization

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Packages and Products

• Hourly Traders
• Next hour
• Balance of the Day
• Short-term Traders
• Next Day
• Balance of the Week
• Balance of the Month
• Prompt Month

• Long-term Traders
• Jan-Feb
• July-Aug
• Q1-Q4
• Asset Optimization
• Spark spread
• Physical Delivery

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Combined Cycle Hedging Example
Physical Unit Characteristics
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Combined Cycle Hedging Example cont.

• Intrinsic on 1/31/01 1,131,680
• Vs
• Hedging PL (extrinsic) 139,651
• Intrinsic on 2/5/01 1,166,880
• 1,306,531
• Difference 174,851
• 5.71 0.80 7 45.57 5.00
  50.57
• NYMEX Basis HR
  VOMSTART Cost
• 50.57 - 57.00 6.43
• Cost Sales Price Spark

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Role of Business Unit

• Manage Risk
• Interaction Integration

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2001 Strategy

• Growth
• Diversification

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NERC Regions
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Electric Trading Hubs
Major Electricity Pricing Points
COMED
CINERGY
CINERGY
TVA
TVA
ENTERGY
ENTERGY
ERCOT
ERCOT
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Packages and Products cont.

• On-Peak
• 5x16
• Off-peak
• 5x8 and 2x24
• Summer Winter peak
• Load Following

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Types of Power

• Firm Liquidated Damages (LD)
• System Firm
• Unit Contingent
• Non-Firm
• Transmission Contingent

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Transmission Grid
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Types of Transmission

• Network
• Firm
• Non-Firm

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Transmission Problems

• Market buys contract path service, but delivers
  under flow path.
• Contract path does not account for flows on
  adjacent systems (TP2) due to the grid
  configuration.
• Flow path is dynamic and changes with the path of
  least resistance, hence it is difficult to
  capture accurately.
• The flow on TP2 may cause an overload unaccounted
  for in the contract path which, may cause the
  transaction to be curtailed due to TLRs.

PJM
Contract Path (80)
Only 10MW of ATC cause deal to be curtailed
APS
VEPCO
100MW
Flow Path (20)
AEP
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Transmission Loading Relief TLR
Level Two or Higher TLR Logs
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Decision Making Variables

• Demand and Load
• Load Growth
• Seasons
• Weather

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Profile of a Southeastern U.S. Load Center
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Weather

• Operational forecasting for energy trading
  (1-180 days forward)
• Two model approaches
• Dynamic (numerical) models- next 15 days
• Analog (statistical) models- next month or season
• Statistical analysis of climate data
• Forward energy trading
• Weather derivatives

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Weather Daily Schedule
Central Time
Actions
500 AM
Download process dynamic model data (0 Z model
runs)
Publish 2-day forecast (temperature, heat index,
wind chill, precip. probability)
Review critique early-morning forecasts from
public private sources
630 AM
Publish 10-day forecast
Brief Power Traders
730 AM
Publish 15-day forecast
Brief Gas Power Traders
830 AM
Publish additional graphical narrative forecasts
North America global interests
Atlantic hurricanes (June 1- November 30)
900 AM
Predict afternoon changes among public private
forecasters
1030 AM
Download process dynamic model data (12 Z model
runs)
Publish updated 2-day forecast
Brief Gas Power Traders
1130 AM
Review critique mid-day forecasts from public
private sources
1230 PM
Publish updated graphical narrative forecasts
Review long-lead forecast data
Conduct statistical analyses other climate
research
200 PM
Review critique National Weather Service 6-10-
and 8-14-day forecasts
Brief Gas Power Traders
300 PM
Conduct statistical analyses other climate
research
Update long-lead forecasts (30-180 days forward)
Develop new weather products for Traders
Back-up computer programs data
500 PM
End of shift
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Weather15-Day Temperature Forecast Guidance
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Weather
Hourly Temperatures with Actuals 8o F Cooler Than
Forecast
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Decision Making

• Supply and Generation
• Marginal unit
• Fuel prices
• Heat rate
• Plant outages
• Fuel deliveries
• Water supply

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To tradeor not to trade?

• Analyze weather
• Impact of outages
• Price of fuel
• Choose package
• Choose product
• Decide on bias
• Measure risk
• Execute the trade