That quote fails to point out that despite almost record low injections, stocks are still at almost record highs.
Also worth noting that NG is down 2% today after yesterdays surprise rally.
As always, and as @WilleeMac mentions, it all comes down to winter weather.
How far out would a utility company like LG&E - KU buy? sell? /NG for winter?
I'm basing this on the assumption of the utility locking in prices etc.
What would most likely be used, calendars, butters, or?
Also, would the utility still charge you prompt month prices of JAN FEB in Jan and Feb etc?
I forgot they have to go before the Kentucky Public Service Commission to apply for rate increases, how often can they I don't know BUT they usually get what they ask for (cough, cough where are we playing and when is our tee time?)
Last edited by WilleeMac; October 14th, 2016 at 03:56 PM.
Ahh the question of utilities and when should they buy their supply. Full disclosure it's been several years since I've been involved in that side of the business (selling supply to utilities) but I'll give you my experience.
Back in the roaring energy trading days of the late 90's when Enron & Competitors were swinging their oversized energy trading bat's, one of the most popular win-win trades out there was utility Asset Management deals. Over decades utilities had built up large physical portfolio's of storage and transport that they used to meet their demand requirements. Problem was that wasn't the optimal use of those assets. So in a traditional asset management deal Utility ABC would allow Energy Merchant XYZ to use their storage & transport assets, for whatever they needed - not just to supply the utility. In return Energy Merchant XYZ would sell below market gas to Utility ABC. This was a good deal for the Utility as they now supplied their gas cheaper than they could do themselves, but also a good deal for the Energy Merchant, because the optionality embedded into the storage and transport was worth more than the discount they were giving the Utility.
The problem with being a Utility, whether your supplying gas or power, is that you have to manage your supply so that you can meet 'peak demand' which may only occur for 1 or 2 days a year (in gas or a few hours in power). There's two ways primary to do that. The first is to buy a lot of supply and sell off what you don't need, and the second is to buy for your average day, and then manage your peak days when they happen, either by buy peaking options or spot purchases.
In the first, if prices & demand are high you do well, as you've arguably overbought. The problem is if prices & demand are low you have to sell off your excess supply, often at hefty losses. In the second it's almost the opposite. If prices & demand are high you've under bought and have to buy excess supply at sometimes crazy prices, but if prices & demand are low, you look good.
This creates the situation that your damned if you do, and damned if you don't. As @WilleeMac said "they have to go before the Kentucky Public Service Commission to apply for rate increases". Whatever they do, somebody will be at that PUC/PSC hearing and explain how the Utility should have done something different, and if they had they would have saved $X and as such they should not be allowed to pass through their cost increase. This has created a situation where most utilities are incentivezed to do nothing. They do very little hedging and buy most of their gas on a month ahead and day ahead basis, hence their average cost is never that far away from published index's.
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