Found this Gem on Cowles' forum.

Closing The Electricity Futures Market 's For New Years!!!!! greenspun.com : LUSENET : Electric Utilities and Y2K : One Thread -------------------------------------------------------------------------------- The devil is in the details and the truth is in the testimony. God bless Bob Bennett for sneaking this stuff into his written testimony. Hey media, how come you didn't catch this? I would say this has major story written all over it. Can someone who knows old Bob Bennett ask him what he meant by the following statement contained in his testimony:

"For instance, the North American Electrical Reliability Commission (NERC) reports that excess electrical generation capacity will be available while short-term electricity trading will be halted to ensure that additional stresses are not added to the overall system."

Short-term electricity trading will be halted to ensure that additional stresses are not added to the overall system?

Hey Bob, have you told any of the poor saps who might be holding juice futures about this? What happens to their investments? Hosed in the name of grid stability? Yikes! When's the last time we halted trading in an entire commodity market? I'm not talking locked limit down, i'm talking frozen solid 'til the smoke clears.

Here's Bobby's entire statement:

Statement of Senator Bennett

Online Update of Electric and Gas Utilities

Wednesday, August 04, 1999

Over a year ago, when this Special Committee held its first hearing, the topic the Y2K readiness of the all-important power industry. Because quite simply, without power nothing else works. As a result, we make utilities the Committees top priority. We knew we had to focus attention on this sector to avoid the worst of Y2K scenarioscascading blackouts across North America.

Today, the Committee is taking statements from the regulators of the electric and gas utilities as well as members of these industries. The good news is that there has been remarkable progress in these utilities over the past year, and overall, these industries are well-prepared. However, lingering doubts remain about the ability of all producers, suppliers, and distributors to deal with unexpected failures. It is not enough, I contend, to report that all systems are Y2K-ready or that they will be ready by September, we must know that these sectors are planning for possible problems and how to recover from them.

Last year we were concerned that the entire electric grid would collapse or that the gas pipelines would shut down, cutting of service to millions of customers in the middle of winter. Today we are reassured that while some utilities are not 100% Y2K-ready, the situation is now more manageable. According to industry and the regulators, if Y2K were to occur today, the vast majority of Americans would experience no problems whatsoever.

Todays testimony will reveal that extensive contingency planning is occurring. For instance, the North American Electrical Reliability Commission (NERC) reports that excess electrical generation capacity will be available while short-term electricity trading will be halted to ensure that additional stresses are not added to the overall system. As the recent heat wave events has made evident, the ability of power producers to get power to customers depends heavily on demand. Winter demand is as much as 50% lower than summer peak demand, so there is a lot of extra capacity available.

There is some obvious concern about the safety of nuclear reactors and what contingency plans are in place. The Nuclear Regulatory Commission is saying that, as of July 1, 1999, 100% of the safety systems are Y2K-ready, but that some minor operational systems will be updated as late as December 1999. The proposed contingency plans include staffing two NRC monitoring centers and to have onsite inspectors with global satellite phones. Of major concern is whether these contingency plans have been sufficiently tested. To my knowledge, nuclear power plants are not planning tests to ensure that personnel are fully trained in the use of manual procedures should computer monitoring systems fail. Nonetheless, we are assured that the Nuclear Regulatory Commission is taking adequate steps in the next few months to follow up on these concerns.

The delivery of natural gas is a different story, with less coordination between production and distribution than in the electric industry. Today we have statements from the gas utilities represented by the American Gas Association (AGA), the distributors for pipelines represented by the Interstate Natural Gas Association of America (INGAA), and the Federal Energy Regulatory Commission (FERC). Industry representatives claim that they will be Y2K-ready by December 31st, and that by September 30th all but 4% will be ready. But according to a survey by the American Petroleum Institute in June, less than 25% of the industry was ready with less than 6 months remaining. There is good news in this sector however, with over 88% reporting that independent testing will be conducted. Also, it is clear that the industry is taking the problem very seriously, committing over $1 billion to remediation. Furthermore, according to industry experts, the delivery of natural gas has a strong foundation of contingency planning since they are accustomed to dealing with a variety of problems on a daily basis.

Over the next few months, we will be tracking the efforts of NERC and following up on its exception reports; monitoring the NRC on the contingency planning and remaining nuclear plant operational issues; and watching the gas industrys late surge to become Y2K-ready. We will be posting on our web site follow-up information we obtain from these and other witnesses regarding the preparedness of the utilities sectors.

We appreciate the statements from the industry and believe that the American public will be reassured that this most important sector is meeting the Y2K challenge head on. I am confident that, with some minor exceptions, the lights will be on and the gas will be there to heat our homes. However, we are fully cognizant of the fact that these exceptions wont be so minor if you are the one affected.

-- Jim Smith (cyberax@ix.netcom.com), August 07, 1999

-- Call Me Angel of The Morning (juice@newton.com), August 07, 1999

Answers

Okay, I'm no commodities expert, but since when are electricity futures traded on the market? How exactly would you take delivery?

I assumed this statement meant that trades between grids would be halted in order to prevent cascading failures. Localize the blackouts, before risking the entire grid...that sort of thing.

-- Dog Gone (layinglow@rollover.now), August 07, 1999.

Looks like dogs know more about the Commodities Market than Morning Angels!!!!

-- smitty (smitty@sandiego.com), August 07, 1999.

I truly hope you are happy. I will now have that song in my head the rest of the day. Call Me Angel of the Morning.......gag, ack, ugh

-- Butt Nugget (nubuttet@better.mousetrap), August 07, 1999.

I guess this one is better:

Right about now, The Funk Show Bother; Right about now, The Funk Show Bother; Right about now, The Funk Show Bother; Right about now, The Funk Show Bother; Right about now, The Funk Show Bother; Right about now, The Funk Show Bother;

RiRiRiRiRiRiRiRiRiRiRiRiRight about now, The Funk Show Bother; Right about now, The Funk Show Bother; Right about now, The Funk Show Bother; etc. etc. etc. yada yada yada

-- Butt Nugget (nubuttet@better.mousetrap), August 07, 1999.

I think Dog is partially right. Electricity futures are traded on the NYMEX, but I suspect that the trading to which Sen. Bennett referred is spot trading, not futures.

As for taking delivery on electricity futures, you roll out your heavy duty extention cord ..... :-)

Actually, they appear to have futures contracts for delivery at some facility on the California-Oregon border, as well as at the Palo Verde switchyard in Arizona. It also appears that they have recently added a "PJM" (Pennsylvania-New Jersery-Maryland) contract with delivery at the "western PJM hub".

Jerry

-- Jerry B (skeptic76@erols.com), August 07, 1999.

You should gohere and read some.

It appears that dogs aren't that smart after all, thy're just dogs. In Korea they're considered to be food.

http://www.nymex.com/

-- Gordon (g_gecko_69@hotmail.com), August 07, 1999.

Hey!

I resemble that remark!!!

-- Dog Gone (layinglow@rollover.now), August 07, 1999.

I stand so corrected! Electricty futures, who'da thunk it...

I still don't know for certain Bennett was talking about that, but I guess he could have. Next time I'll do some research before nipping an angel in the butt. :-)

-- Dog Gone (layinglow@rollover.now), August 07, 1999.

Dog Gone,

While you may have lost track of the scent, I do believe your instincts were correct. Bennett's statement beginning: "short-term electricity trading will be halted" includes the rationale "to ensure that additional stresses are not added to the overall system". Since futures trading on the NYMEX would not noticeably stress the grid :-), it would seem to be a safe bet that he was referring to spot trading.

Jerry

-- Jerry B (skeptic76@erols.com), August 07, 1999.

Jerry I would defer to your intelligence were it identifiable.

The futures market is linked to the spot market. The signifigance of this statement is that these two will be disconnected artificially.

Those contracts do not trade in a vacuum. They are linked to actual physical power. If you do some reading you'll realize that at some point the July COB becomes a real live chunk of juice which someone recieves delivery on. It is not simply a piece of paper. Duh.

-- Gordon (g_gecko_69@hotmail.com), August 07, 1999.

"For instance, the North American Electrical Reliability Commission (NERC) reports that excess electrical generation capacity will be available while short-term electricity trading will be halted to ensure that additional stresses are not added to the overall system."

Probable expanation:

1. Excess capacity will be available. USA has about 115% of peak power generating capacity although this was recently tested in July hot spell. Peak power demand occurs in summer because AC uses more electricity tha winter heating which uses electricity but also natural gas, and to lesser extent propane, fuel oil, coal and wood. In Cincinnati, power demand on 12/31/1998, last year was 3,000 megawatts but generating capacity of local power company Cinergy was and is 11,000 megawatts. On 12/31/1999, Cineregy will have all generating capacity up and spinning: "If needed to help other regions in event of a disruption at another power company;s generating plant".

2. 'Short term electricity trading will be halted': This I bele3ive refers to the method used by power companies in selling blocks of pwer between themselves and to large users like a steelmaking plant. Power companies have some big users that buy power in blocks, if the customer uses more than his block the incremental cost is significant. Many big users of power also have an Interupt allowance that allows the electricty to interupt power after notifying the big customer of the intended interuption. For this Interuptible Supply contract, big users like steelplants get power blocks at lower costs.

I believe Sen. Bennett is refering to the fact that power may be limited so that big users cannot overuse in bigger blocks than they had contracted for and/or the power company may choose to interrupt power per interuptible supply contracts.

-- Bill P (porterwn@one.net), August 08, 1999.

Whatta you guys smokin crack or what? Listen, regardless of what Bob Bennett meant, any, i repeat any, disruption in the "spot" market for electricity will send the futures into an orbit that will make a shuttle launch look like a bottle rocket. You can't do one without the other. They can't be disconnected. The whole purpose of a futures market is to allow you to hedge the risks inherent in the spot market. Guys, stick to postulating about things you're familiar with.

Regardless of which market old Bob meant, this is a signifigant developement. Help me out there you Zap traders! What do you think of this ?

-- Gordon (g_gecko_69@hotmail.com), August 08, 1999.