In the ever-changing climate of energy deregulation, portfoliomanagement tools, such as weather hedging and storage control, arebecoming more vital, a panel of industry experts said Thursday atthe LDC Forum Conference in Boston, MA.

Since 1997, 1,000 weather-market trades have taken place,representing $2-3 billion in nominal savings, said Darren Wilcox,manager of developing markets for Southern Company Energy Marketing(SCEM). He estimated $15 to 20 billion are at risk each year due toweather changes. He said the purchases in the weather market, suchas heating degree-day collars, floors and swaps have helpedSouthern protect itself.

“Several well capitalized players are making markets in weatherrisk management products,” Wilcox said. “Wall Street is offering toraise debt capital through weather-linked notes, and analysts arebeginning to recognize this developing market.”

Another result of deregulation, said Peter Tumminello, vicepresident for Enserch Energy Services Inc., is the ownership ofstorage is changing hands to new players. These new players need to”get smarter” he said about storage management because the storagespace will be limited by the end of the summer. “Due to theremarkable year-on-year inventory, its an interesting market rightnow for storage. I would argue that storage space will be extremelyvaluable by the end of this summer. In fact, we’re already enterthis refill season with storage 40% full throughout the U.S.”

While it is too early to estimate the impact of new storage orpipeline projects on storage value, Tumminello said future factorssuch as the decreased storage ability, lower rig counts, electricgeneration demand and load growth will drive the value of storageupward. On the other side, the trends of the tighteningsummer-winter spread, increasing market optimization and low pricevolatility offer threats to storage value in the future.

With the plethora of divergent trends facing the industry,Tumminello argued storage players need to be fully aware of tradingtools, such as balancing and peaking services and the ability torepackage storage contracts to adjust turn capabilities, in orderto succeed. “If modeled properly, storage will continue to be thebest physical balancing tool in the market.”

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