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Flashcards in power risk management Deck (22)
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1
Q

what is load a function of?

A

temperature

2
Q

how is power priced regionally?

A

OTC

3
Q

what is transmission?

A

transportation of power over long distances over high voltage grids

4
Q

key drivers of power prices in 2011

A
  1. temperature anomalies
  2. nuclear outage
  3. nat gas pipe constraints
  4. increase in use of hydroelectic
5
Q

primary objectives of power risk management?

A
  1. comply with regulators
  2. protect the business from unexpected events
  3. obtain a good credit rating
  4. optimize risk/return trade off
6
Q

controls of risk management?

A
  • find the risk of the overall system

- limit the risk to the parameters specified

7
Q

scientific aspects of risk management?

A

building quantitative models, doing stress tests, forecasting

8
Q

artistic aspects of risk management?

A

common sense, intuition/interpretation, communication

9
Q

ESOQ vs EPOQ

A
esoq = economic sales opportunity quantity
epoq = economic purchases opportunity quanity
10
Q

what is true daily generation capacity?

A

= generation capacity - forced/planned outages

11
Q

what is EAG?

A

economically available generation

12
Q

calculation of ESOQ/EPOQ model

A

= EAG - Expected Native Load

13
Q

If EAG > Expected Load then?

If EAG < Expected Load then?

A
  • ESOQ; the ability to hedge generation risk by selling off excess power
  • EPOQ; the ability to hedge excess generation by buying power to ensure native load
14
Q

natural positions of power generation plant?

A

short nat gas, long power

15
Q

what is the heat rate?

A

heat rate is how efficient a generator is running; measured by the amount of BTUs necessary to create a kilowatt hour of energy

16
Q

company with most efficient heat rate in Texas?

A

SUEZ Energy North America

17
Q

what is the objective of spread trading the spark spread?

A

Take advantage of price discrepancies that occur between contracts

18
Q

spread trade off nat gas?

spread trade off power?

A

nat gas = different locations

power = delivery points, seasonal spread

19
Q

what is the spark spread?

A

intercommodity spread trade between natural gas and power

20
Q

traditional spark spread methodology used?

A

NPV analysis

21
Q

recent spark spread methodology used?

A

extrinsic/intrinsic option valuation

22
Q

option with highest extrinsic value?

option with intrinsic value?

A
extrinsic = At-the-money
intrinsic = In-the-money