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News
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LCG, October 10, 2023 – LCG Consulting (LCG) has released its annual outlook of the ERCOT wholesale electricity market for 2024, based on the most likely weather, market, transmission, and generator conditions.
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LCG, October 10, 2023 – LCG Consulting (LCG) has released its annual outlook of the ERCOT wholesale electricity market for 2024, based on the most likely weather, market, transmission, and generator conditions.
Read more
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Industry News
FERC may Issue Rules on 'Derivatives' Accounting
LCG, Dec. 17, 2001--The Federal Energy Regulatory Commission will meet Wednesday to consider tightening up accounting rules for energy company. The move is in response to the arcane and novel accounting that led to the collapse of Enron Corp.FERC said it will discuss a possible new rule on "accounting and reporting of financial instruments, comprehensive income, derivatives and hedging activities." No one is quite sure what "derivatives" are, so we will try to sort it out. Trading in derivatives is a form of off-track betting, where the "track" consists of the various securities exchanges. Derivatives are not the securities themselves, but pieces of paper -- financial contracts -- representing activity of the underlying securities. Puts and calls are old and well-establish forms of derivatives.A put option is a financial contract giving the owner the right but not the obligation to sell a pre-setamount of the underlying financial instrument at a pre-set price with a pre-set maturity date. Similarly, a call option is a financial contract giving the owner the right but not the obligation to buy a pre-set amount of the underlying financial instrument at a pre-set price with a pre-set maturity date.Suppose you much admire Acme Brass Mines Ltd., and you believe that its share price will double from $100 to $200 in the next six months and are relatively alone in this belief. You would like to buy 10,000 shares of Acme Brass Mines but lack the $1 million to do so. For a tiny fraction of that, you purchase a six-month call for 10,000 Acme Brass Mines shares at $120 and a six-month put at $200.At the maturity date, six months after you bought your options, your optimism about Acme Brass Mines has been borne out, so with a couple of telephone calls you raise enough cash to exercise the call option, acquiring 10,000 shares for $1.2 million and then exercise the put option, selling the shares for $2 million. You are suddenly $800,000 richer, less whatever you paid the usurer for the use of his money for a few hours.You can also work the technique in the opposite direction if you are pessimistic about the prospects of a company, such as Ajax Nuclear Fusion Power Inc., and it's a lot safer than selling Ajax short. There is no limit to how much you can lose on selling a stock short.If you guess wrong, the most you can lose with puts and calls is what you paid for the options. Professionals refer to the use of derivatives as "risk management." We call it betting.Commodity futures contracts are derivatives of a sort. A specialist in jelly beans may believe the price of the beans will exceed $10 per bushel at harvest time, and offer contracts to purchase jelly beans at $10 in August. The jelly bean farmer may be less sanguine, and purchase enough of those contracts to cover his entire crop. If both parties are correct, the specialist makes a profit on the jelly beans he buys at $10 in August and the farmer tends his field confident that he will get $10 a bushel for his production. The farmer has managed the risk inherent in growing jelly beans.Nowadays you can trade in derivatives on everything -- even weather. It would not be surprising if, for owners of a wind farm, it would be possible to buy derivatives that paid off if it was as calm as it was for Coleridge's Ancient Mariner. The payoff would compensate for the cost of idle wind turbines. That sort of betting probably could be called risk management. We'll take our chances at the track.The Securities and Exchange Commission and the Commodity Futures Trading Commission regulate where stocks and bonds, in the case of the SEC, and pork belly, copper and other commodity futures contracts, in the case of the CFTC. Both agencies require certain accounting standards to be followed, but accounting rules are set by the Financial Accounting Standards Board.Nobody regulates the derivatives markets.FERC's authority to establish mandatory accounting procedures is limited, but the agency can require that financial disclosure by companies dealing in interstate electricity and natural gas markets be both intelligible and standardized.FERC's rulemaking may seek to enforce a 1998 rule by the FASB which tightened disclosure rules for energy firms' hedging positions and required firms to list the fair value of their contracts on balance sheets, a point that Enron may have missed.A couple of good rules have been around for more than a century: You play with the money you came with, you don't go light in the pot and you don't issue markers. Enron ignored those rules.
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UPLAN-NPM
The Locational Marginal Price Model (LMP) Network Power Model
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UPLAN-ACE
Day Ahead and Real Time Market Simulation
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UPLAN-G
The Gas Procurement and Competitive Analysis System
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PLATO
Database of Plants, Loads, Assets, Transmission...
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