Power companies face grim reality as commodity bets expire
By JAMES OSBORNE
Staff Write, Dallas Morning News
Five years ago, electricity prices were climbing fast and with them, the profits of some of Texas’ largest power companies. But already there was a sense that the high times might not last forever.
Financial trading desks at companies like NRG Energy and Energy Future Holdings Corp. were designing elaborate bets to protect themselves when prices came back to earth. Natural gas prices largely set the price of electricity in the United States.
So they bet on the price of natural gas falling, what traders refer to as shorting. And when it did, executives had a new revenue stream worth billions of dollars a year to make up for the shortfall in electricity sales.
In recent years, hedging programs have aided the power industry through a period of sustained cheap electricity prices brought on by the boom in natural gas drilling. But those hedges are now expiring, leaving power companies exposed to power prices half what they were in…