Forum Archive Index - June 2001

["Tony" <tony@ltdrisk.com>]

Contact is a net seller of electricity(ie it has more generation than retail
customers) so the higher the spot price the better for them if they have NOT
sold hedge contracts for ALL their output(unlikely).

Consider the water in the lakes as fuel for the hydro stations. The lower
they go the more valuable is the fuel because they don't know when they will
fill up again. This makes the output of the hydro station more expensive and
so they offer their output to electricity market at a higher price. This has
a ripple effect throughout the generation stack(which is dispatched in order
of cheapest first and most expensive last. The last one dispatched IS the
spot price and this happens for every 1/2 hour of the day) and is good for
all investors in generation assets.

If you have shares in generators you then have a natural hedge!

tonyDB

-----Original Message-----
From: owner-sharechat@sharechat.co.nz
[mailto:owner-sharechat@sharechat.co.nz]On Behalf Of Jeremy
Sent: Wednesday, 13 June 2001 12:36
To: sharechat@sharechat.co.nz
Subject: Re: [sharechat] CEN


From: "Jeff Smith" <jc.smith@waikato.ac.nz>
> My understanding is that Contact uses spot prices for wholesale
electricity,
> similar to the way gold mining companies spot the price of gold before it
is
> mined. Therefore as I see it, current and future climatic and hydrological
> status might be good or bad, depending on how smart Contact has been in
> spotting their wholesale prices.

The technical definition of spot pricing is the price for an actual transfer
in two days time (As compared to Tom(orrow) and Tod(ay))

Unless they are using spot pricing to set a price for a season or year then
I don't see how being astute in spot price deals can help them.  They are
simply subject to the day to day vagaries of the market.

Other schemes would help them better even out the cash flow, such as hedging
and forward contracts.

Jeremy



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