Good job on interesting data James. I, for one, will be eagerly awaiting your later reports. Keep up the good work.

Warren

Mr Carson. It seems you are trying to point out tactfully that absolute pricing is almost meaningless, and a drop in prices does not indicate good or bad things necessarily. $53 power and $5 gas is leaves a decent combined cycle plant with a margin of $15.5. When gas was $12 the same 7500 heat rate plant would have needed $105.5 to make the same spark spread. In my opinion all the technicals are oversimplifications. In my former life as a power trader it amazed me how the technical folks would study graphs and charts then read Firmat's and Platt's and then group into a herd and prove themselves justified by their own group actions. I read the phophecy also since it did effect short term pricing. It appears Mr. Letzelter is of that camp. I can remember in 2000 and 2001 when the forward curves clearly showed that anyone that would build a combined cycle Nat Gas plant would make huge profits. They were essentially gold mines. By the end of 2002 reality set in and the large IPP gambles made by many firms were threatening them with bankruptcy. It was finally realized that it was possible to spec steel (power plant construction). I agree with Mr. Carson Nat Gas and power prices are tightly locked since gas combined cycle power is on the increment. I doubt the heat rate holds up near 12000 since that brings the Nat Gas fired traditional steam plants back in the mix. Of course I am not an expert I haven't traded power since 2003, but it is still an interest of mine. I feel that for February a 7500 heat rate plus $15 with $5 gas is a reasonable price given the economy and the chances of lower than normal loads continuing. If I had a lot generation length I would sell some $53 power. As summer moves closer if the economy remains weak I would expect prices to move to down to 7500 plus $10. But it we get early heat it is anybodies bet. One lesson I did learn if you are going to try to predict the power prices it is best to be gambling with someone else's money.

Your right, I stand corrected I showed my bias toward generation. I always worked for generators and IOU then an IPP. Even at the IOU price was very important since all purchased power was a pass through to the ratepayers. We did our best to get as low of a price as possible. Typically it did not have much impact on average price or retail rates but it was still very important. It was part of what we were paid to do. Thanks for correcting me. I will try to keep those blinders off.

At first, I had a similar reaction to Mr. Watson's comment. However, as I think back to my contacts with larger trading ops, analysts often do fall into a groupthink cycle. I have heard some amazingly dumb ideas persist because of this. This also explains why savvy (and scarred) trading and risk managers value outside perspectives.

James Carson, JBCarson@RisQuant.com