Primer on electricity futures and other derivatives
Increased competition in bulk power and retail electricity markets is likely to lower electricity prices, but will also result in greater price volatility as the industry moves away from administratively determined, cost-based rates and encourages market-driven prices. Price volatility introduces new risks for generators, consumers, and marketers. Electricity futures and other derivatives can help each of these market participants manage, or hedge, price risks in a competitive electricity market. Futures contracts are legally binding and negotiable contracts that call for the future delivery of a commodity. In most cases, physical delivery does not take place, and the futures contract is closed by buying or selling a futures contract on or near the delivery date. Other electric rate derivatives include options, price swaps, basis swaps, and forward contracts. This report is intended as a primer for public utility commissioners and their staff on futures and other financial instruments used to manage price risks. The report also explores some of the difficult choices facing regulators as they attempt to develop policies in this area.
- Research Organization:
- Lawrence Berkeley National Lab., Environmental Energy Technologies Div., Berkeley, CA (United States)
- Sponsoring Organization:
- USDOE Assistant Secretary for Energy Efficiency and Renewable Energy, Washington, DC (United States)
- DOE Contract Number:
- AC03-76SF00098
- OSTI ID:
- 674932
- Report Number(s):
- LBNL--41098; ON: DE98056096
- Country of Publication:
- United States
- Language:
- English
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