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EES Presentation (August 18, 2000). Opportunity for a complimentary relationship Market imbalance Example of EES opportunity Innovative weather risk products Long dated weather positions. Discussion Topics. Complementary Relationship.

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Presentation Transcript
discussion topics
Opportunity for a complimentary relationship

Market imbalance

Example of EES opportunity

Innovative weather risk products

Long dated weather positions

Discussion Topics
weather market imbalance
Btu distributors are implicitly long hot weather in the summer and cold weather in the winter with concentrated exposures.

Consumers of Btu’s (municipalities, shopping malls etc.) are short hot weather in the summer and cold weather in the winter without concentrated exposures.

The demand for winter puts exceeds the supply because it has been easier for market makers to transact with Btu distributors.

Weather Market Imbalance
example txu tariff opportunity
TXU was offering an interruptible tariff to customers which was significantly lower than the fixed tariff.

In effect, TXU was buying an event day weather call from customers, but was paying far too much for this option.

Example : TXU Tariff Opportunity
weather risk innovative products
We have created a new product to trade weather in the power market

Using the PJM pool as a trial region, we established that weekly loads had a 98% correlation with weather.

We have begun trading PJM demand swaps with the power desk via Enron Online and will roll this out to the external market as soon as Enron Online technology allows.

Weather Risk Innovative Products
power demand vs weather
Power Demand vs. Weather

Using temperature, we estimated the projected load* and compared it with the actual load.

* Estimate includes real GDP growth

develop length
Develop Length
  • Currently the weather market is a relatively short term market with the majority of the transactions being for 5 months or less.
  • The longest transaction the Weather Desk has executed has been 5 years.
  • Given the actuarial nature of the weather business temporal diversification is important. Accordingly, the Weather Desk is interested in longer term transactions.
enron corp requirements
Enron Corp Requirements
  • The weather risk management group has been tasked with the responsibility of mitigating Enron Corp’s internal weather exposure
  • With respect to EES, this is clearly an opportunity in addition to a responsibility