Q&A: Director of Energy Trading

My background:

-Undergrad in Chemical Engineering (semi-target/top tier of non-target)

-Masters in Finance (target)

-Interned at large chemical company where I learned I didn't want to be an engineer

-Four Years at Oil company in energy marketing division. Started out 50/50 in operations and quant groups. Built most of the tools used by the power operations group for trading, scheduling, settlements, etc. Moved to trading group after two years and focused on electricity transmission spreads in northeast US before leaving company.

-Nine Years at current company. Started as analyst for structured electricity products/wholesale load group. Became trader after year 3 for electricity and natural gas in northeast US. Managed positions from the structured products along with separate spec/prop book. Director after year 7 (same time I started my masters) and I now run the structured electricity products group while also spec trading power/gas.

Happy to answer questions about pretty much anything.

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Comments (94)

Jul 28, 2022 - 8:05pm
popper_stoic, what's your opinion? Comment below:

What's the best book/resource you've ever read that made you understand energy markets (or just markets in general)?

Did you have a programming background to help build up those tools?

What's your view on OPEC/OPEC+?

Do you believe the US has lost control of global energy markets or is the recent Biden embarrassment in Saudi Arabia just a function of Biden economic/foreign policy?

Most Helpful
Jul 28, 2022 - 9:47pm
WinnerWinner, what's your opinion? Comment below:

When I started my first job, in order to understand the electricity markets I read the operating manuals for the ISOs (people that operate the electric grid). It wasn't the most exciting thing in the world, but now I know all the little details of what is actually occurring in day to day operations and it helps with price discovery and asset optimization. For general energy stuff, I enjoy Daniel Yergin's books

One semester of c++ in high school. I mostly used VBA and learned it on the fly. You can accomplish a lot just knowing where to look to get code thats practically already written.

Don't really have a view but a cartel is gonna be a cartel and do what's best for them. They are built to manipulate a market.

The US never had control of the global energy market and the idea of energy independence is a myth because of refining issues. The US hasn't had a functioning foreign policy since the Iraq War. I don't believe Biden is an embarrassment but he's stuck in an impossible position. The US and really the entire world are paying the penalty for the free government money of the last two years and it was inevitable, now he's scrambling because he knows this hurts the party in the next election but really, what can he do? The cartel has the dominant position right now and they will take advantage.

Jul 29, 2022 - 2:40pm
Rotterdam, what's your opinion? Comment below:

To anyone else reading this but isn't involved in electricity markets - just like he read through the operating manuals it is beneficial to read through the contracts specs of the futures contracts you are dealing with. Read up on specs for delivery, locations, settlement procedures, etc and ask yourself why those contracts are structured the way they are and the implications on the market.

  • Intern in S&T - Other
Jul 28, 2022 - 8:18pm

Hey OP…

1) What do structured products look like within commodities/ are you willing to write out an example of this?

2) What's the difference between physical trading and what I guess would just be futures trading? Is physical also responsible for arranging live logistics/ supply chain?

3) How are some of your prop trades structured?


Jul 28, 2022 - 9:57pm
WinnerWinner, what's your opinion? Comment below:

1. Load following deals are common. I will sell a utility X percent of their actual electricity demand for a fixed price. I model the cost of these deals, add a premium and sell it to them and take on the volumetric risk. 

There are also dual strike options that can be dependent on price and temperature. 

2. Physical trades require delivery of the product so yes you would have to handle logistics. I deal mostly in futures which are purely financial and can settle monthly, daily, or even hourly in some electricity cases, like the load following deal. In electricity markets, physical trading is now handled by an ISO. The ISO dispatches the power plans and determine the prices. Futures contracts will settle against those prices. In natural gas, the futures contracts settle before the start of the month, but you can buy products based on the daily prices too. 

3. It's whatever I want them to be. I may think prices are going up so I buy. I may think relative prices between locations are too wide so I can sell the spreads between two places. I also trade daily price options for electricity. Those just settle against the daily price automatically and I can run covered calls, puts, etc with them.

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  • Intern in S&T - Comm
Jul 29, 2022 - 12:15am

Thanks for doing this!

Why power/electricity over other products?

What do you thing about TDPs/GDPs?

Jul 29, 2022 - 12:30am
exotic_caramel, what's your opinion? Comment below:

1. thoughts on some of the ISOs heavily focus on renewables and shunning gas and potentially nuclear to allow for more reliable loads?

2. what type of company do you work for and are your counter parties primarily generators or other groups too?

3. thoughts on EV and electrification of the  grid, and if the power grid can handle demand?

Jul 29, 2022 - 8:06am
WinnerWinner, what's your opinion? Comment below:

1. Its not the ISOs, its the state programs that are behind the renewable mandates. SMRs should be used way more widely and nuclear is the best combination of clean and reliable we have. Its a shame that the US isn't expanding the use of nuclear and Germany shutting down its nukes is so stupid. NG Combined Cycles are still being built throughout the US and they have been key to replacing old coal units. The generation mix is always a challenge but the biggest issues for expansion on any new generator right now is people and steel. We are in a resource crunch in the industry and new generator additions aren't realizing as planned because materials are hard to come by. This is impacting new gas and oil wells, new pipeline additions, new renewable additions, and so on. If these latest federal bills on chips and inflation pass, it should help bring manufacturing back to the US and help solve some of the constraints, however, the solutions from that aren't going to be seen in the short term. It takes time to build new facilities and the NIMBY issues have to stop. The US also needs to get rid of the Trump tariffs. They were bad policy to begin with and its a real shame that Biden hasn't done anything to change that policy.

2. I work for an energy trading company. We have physical nat gas and power business and also have power and nat gas speculative trading groups. I deal mostly with utilities and companies on the demand side of the electricity equation but we do interact with generators, especially on gas supply. I have tried to do business with generators before on the power side but unless they want a block hedging program, I am generally not a fit. I think most of the volatility products the generators sell are too expensive and I can create products with better/similar payouts for cheaper using futures and options.

3. I'm much more concerned over cybersecurity of the grid and weather events than electric vehicles increasing demand. If improved smart metering and time of use rates flatten the demand curve, it will actually make the whole industry more efficient. The power grid can absolutely handle the demand, there are only problems when stuff breaks and that's usually caused by weather events. For example, the issues in Texas in Feb 2021 were because of pipelines and compressors freezing that impacted the flow of gas and made it so generators could not run. Many issues during the polar vortex in Jan-Feb 2014 were a result coal piles freezing (ISOs may structural changes to address this). The power outages and emergency procedures in Ohio in June were because storms knocked out key transmission facilities and the ISO had to operate the area under N-5 conditions (don't usually see much worse than N-2).

Jul 29, 2022 - 11:49am
WinnerWinner, what's your opinion? Comment below:

This is a bit of a cop out of an answer but it all depends on budgets and what is expected of you along with the capital you are provided. If you go to work at a small trading company/hedge fund having a couple million dollar year can be huge. If you are at Citadel and you make 10M bucks you may get fired because you were supposed to make 20-30M. If I were to walk into a generic mid/large sized fund with decent access to capital, I would probably be asked to make 5M+ on VaR around 500k with a seat cost around a million dollars. Banks will probably ask for 10M+ but you will get customer flow that you can sell at a premium to add to the margin.

For my company, I am not really expected to make anything significant on the spec side anymore. I became director after my boss retired and never replaced myself in my former role and spec has fallen away a bit because of other responsibilities (pricing, general strategy, etc). When I had more spec responsibilities, I was expected to make 1-2M and generally was between 2-3. The most senior traders where the only job is to spec trade are expected to make 5-8M/year, a really good year is 10+, and absolutely crushing it is 12-15M. Blowing up generally starts at losing a couple million but usually, when blow ups happen, it gets to 10M+ quick because liquidity can dry up very fast in power and natural gas, especially if you aren't trading the main hub locations.

Jul 29, 2022 - 11:14am
marcellus_wallace, what's your opinion? Comment below:

Great to see someone share this stuff on here.

Only will say I am shocked a "structuring guy" you would say expanding nuclear makes sense. I am sure majority of the deals you are working on is in the renewables space currently. Too often people do not talk about the days when renewables actually crush the market.

Jul 29, 2022 - 11:25am
WinnerWinner, what's your opinion? Comment below:

Thank you

I get involved in the power side for offtakes of renewables but I am not directly involved in the REC markets. We have people that do that and my group will assist on some modeling but thats about it. The key for nuclear is the type, do I want to see new 1000 MW+ PWRs and BWRs like they tried to do at Vogtle and royally screwed up? not at all. Smaller SMRs help with the nuclear waste issues, are proven safe, require less land, etc. When everyone is so worried about the future of baseload generation, they make the most sense to me.

You do bring up a great point on renewables crushing the market. The issues with overnight zero or negative prices because of wind have mostly been resolved but some of the best days to sell power are the days that are super hot with strong solar generation. DR/EE programs kick in with the solar and goodbye peak demand.

Jul 29, 2022 - 4:15pm
gctrader, what's your opinion? Comment below:

Do you think the power market can sustain itself? To your point above many states are pushing legislation that forces LSE's to procure out of market resources. What do you see as the role of a power marketing firm in the future? I imagine some new renewable deals can only be executed by the LSE passing on the cost to rate payers?

Jul 29, 2022 - 9:03pm
WinnerWinner, what's your opinion? Comment below:

There is no such thing as the free market, there is only the market with the rules as currently constructed. There's a lot of different versions of that quote but it is true, we operate within the rules of the market, whatever they may be. Will the market rules change in future? Yes. Will it make trading the market different? Yes. There's nothing wrong with that. Good traders, quants, researchers, investors, etc will adapt. Those that don't will fail and go work for those that succeeded. This is the way

Renewable resources aren't out of market. In general, they are about as cheap if not cheaper than new thermal units. Renewable mandates and REC markets have quickened the pace of build outs, but that's what subsidies for new technologies are supposed to do. Get it to a point where there are economies of scale and they can compete freely and we are at that point and right now, we are there.

In deregulated states, the role of the power marketer will change but its already very different depending on the state/region you are in. As long as states don't re-regulate, power marketing firms will continue to operate. They may have to change cap structures, size, risk tolerance, etc as the market changes but new companies will come and go based on how the innovate and respond. For example, Griddy was seen as a great new way for a normal person to take advantage of market pricing until ERCOT blew up. Griddy went bankrupt and new rules were put in place in many states to try to prevent the issues Griddy had/caused. New companies have formed that will learn from the experience and hopefully improve it. PJM was going through major price formation changes until ERCOT blew up and they realized the potential negative impacts were greater than the benefits so they pivoted and are making different and hopefully better changes on price formation. While these markets have drawbacks, they are still way better than the original deregulated market that resulted in behavior that incentivized blackouts. The power market is always evolving, its on of the things that makes it interesting to me. Reregulation is really where out of market costs would get passed on to consumers. Regulation creates a monopoly on supply for a company that is likely a very large employer in a state. Ultimately, that company will get what it wants in its rate case and the rate payers will be stuck paying the bill for bad decisions. This can also occur in deregulated states, see First Energy, but is much more likely in regulated states.

In one way or another, all costs are passed on to rate payers but as I said earlier, its a misconception that renewables are out of market at this point. Just as a thought experiment, think of something like this from the lending side. Providing financing and offtake agreements for renewable plants is big business for banks, PE firms and anyone else trying to lend in the space. Choosing renewable can help de-risk that business because the wind, solar or battery farm is smaller than a typical CC. They may lend to 20 parties that are geographically spread out and reduce locational risk compared to one large plant in one location. The risk of equipment failure is less, if one plant fails thats only 5% of a portfolio, compared to losing a large plant in one location. In building a solar field, there's no risk on fuel supply, pipelines, etc being an issue. The cost to build transmission and transformers is less and because the supply isn't centrally located, the impacts of possible congestion pricing are minimized. There is also less of a lead time as you can get a new solar field planned, permitted, developed and online in 2 years, even if 3 years is more likely. If you did that in five years for a new combined cycle, you performed a minor miracle. There are many reasons why there's a focus on renewable development over thermal generation and legislation is only one of them.

Jul 30, 2022 - 10:51am
WinnerWinner, what's your opinion? Comment below:

I'm not gonna provide my personal curve but yes there is still upside. Here's a few things that I think can cause the upside/downside

1. Weather - short term, weather is the most important factor to get right in power trading. Demand, especially in the summer for power and winter for gas, is weather driven. A cool summer means less AC used and lower power burns, prices drop. A warm summer the opposite. In winter the opposite relationship but same idea. So far this year, we have had a very hot summer and that has driven natural gas power burn to record levels. If that continues, we will see additional demand that will increase/hold up prices. My opinion is the price curve is anticipating the warm weather to continue for at least August. We are also approaching hurricane season in the gulf and hurricanes have generally become demand destruction events. A note to anyone wanting to get into energy trading, learn meteorology.

2. Freeport LNG - When does this return to service? That's 2bcf/day of demand everyday that's gone right now. They say they are returning Q4 but I don't think the market really believes that. If Freeport didn't have its issues, I think we are at $15 instead of $8 right now. There's probably some nat gas traders reading this saying we would be way above $15 and I don't think I could really argue against them. The curve would be very very strong.

3. Production - Most natural gas data vendors that provide production forecasts insist on seeing several bcf/day of new production before the end of the year. The forecasts for production have been missing high all year but rig counts are increasing. I believe the market is discounting the forecasts.

4. Recession trade - I'm not going to get into whether we are in a recession or not because the technical definition doesn't really matter but if people are struggling to pay bills they will adjust the thermostat and there will be less demand. Businesses may shut down = less demand and so on. I think we are starting to see hints of this occurring but its just hints and determining whether its just noise or actually happening is very tough.

5. Europe trade - To me, this is as much a psychology/sympathy trade than anything because it doesn't matter if Europe is 20 or 50 dollars for gas, its in the money to export, however, if the issues with Russia continue, the US will export as much LNG as possible and that's additional demand. If the Russia/Ukraine war stops and Russia starts exporting more gas, global prices will fall but the US will then turn more gas to Asia. The spreads are so far in the money that exporting as much as possible should continue regardless. That said, if tomorrow there was a headline for a peace deal, nat gas prices everywhere are going limit down.

As for the softness in Q2, the big thing is the production forecasts. We are currently at ~96 bcf/day and many forecasts for Q2 next year start to get to 100-103 bcf/day in Q2. There will be some LNG additions to offset that but if that forecast actualizes, the supply/demand balance for 2023 looks fine and that is what the curve is saying. There's also the growth of renewables and batteries (EIA data says we are adding about 2 GW/month of renewable capacity) to offset power demand and depending on where new nat gas combined cycles are being built, I think they may start to make the power burn more efficient (replacing a 11 heat rate CT with a 6.5 HR CC) instead of just replacing coal plants.

If you gave me a completely open book with no existing positions and free rein to trade power, I'm probably selling covered puts in Q1 and buying Q2.

Aug 4, 2022 - 10:30am
ContangoCap, what's your opinion? Comment below:

2. Freeport LNG - When does this return to service? That's 2bcf/day of demand everyday that's gone right now. They say they are returning Q4 but I don't think the market really believes that. If Freeport didn't have its issues, I think we are at $15 instead of $8 right now. There's probably some nat gas traders reading this saying we would be way above $15 and I don't think I could really argue against them. The curve would be very very strong.


Are the natty traders you know surprised about this?  I think the market was expecting a partial restart in Q4

Aug 1, 2022 - 8:53am
WinnerWinner, what's your opinion? Comment below:

As they say in commodities, the cure for high prices is high prices. I don't think we are going back to the extreme low prices (2 handle for nat gas, sometimes lower in supply areas) of the mid-late 2010s anytime soon, if ever, because of the global nature of natural gas now, however, I don't expect the very high prices to last past this winter unless there is a significant weather event.

I also don't think 2010s were necessarily bad, just different and tougher. I wasn't around during the 2000s but I have been told by several people at my company that is was easier to make 5M before the Great Recession than it was to make 1M in the 2010s. Even with that, we still made millions and met company goals almost every year. For me, the 2010s were the baseline and what I was used so I would say that adjusting to the new higher priced time-period has been a bigger challenge than dealing with the low prices of the 2010s. From a structured products view, in general the 2010s may have been very boring and it was tough to have huge years because of how volatility dropped, but the vol dropped for a reason so while it was difficult to have a gigantic year, it was fairly easy to have a decent year.

This is all a very long way of saying that there will be plenty of money to be made in energy trading even if prices drop back to where they were late 2010s, though I don't see that happening unless the upcoming/current recession is really really bad.

Aug 1, 2022 - 10:25am
marcellus_wallace, what's your opinion? Comment below:

Well said man, you on a roll.

Young people seem to think today is so easy cause of the news headlines. Reality is the market has super high margin costs, low liquidity and a bunch of traders just trying to crush each other many times we push well past "physical constrains" cause no one can enter/exit for cheap anymore.

In the 2010s, while lower vol a lot of systematic traders did well as the market was not full of cowboys trying crush their skulls. Plus we had; massive marcellus production buildout, 2 of the harshest winters the East has seen in ages, WCSB production blowout, Socal summer shortage, Waha/Midcon/DJ production growth, 2015 vol swing, the rise of "intraseasonal spreads for summers", 2019 August ERCOT and CAISO blackouts. Lots of events happened and trades were linear paths vs high vol of today.

Aug 1, 2022 - 4:50pm
Texas Tea, what's your opinion? Comment below:

Any thoughts on power prices over the next 3-5 years, structurally up or down?  It's not something that's talked about a lot like oil, gas, etc, but arguably even more important.  I am in the structurally higher nat gas prices camp over the next 5 years, but $3.50-$5.00 not what we're seeing today.  

Hell I gotta tack on one more -- do you think the grid is actually equipped for a materially higher power burden over the next 5-10 years?  It sure doesn't feel like it in places like Texas or California (not really talking about one-off weather events like Uri, more so periods where the load is HIGH and the grid seems to barely keep up with it).

  • 1
Aug 2, 2022 - 8:11am
WinnerWinner, what's your opinion? Comment below:

The power curve is already pricing in a "return to normal" over the next 3-5 years, but those prices will still be higher than what we saw pre-covid and reflect gas in the range you said  (cal 25 nat gas is ~$4.5). For regulated areas of the US, the prices paid by consumers will reflect the curves even if there are timing differences because of how rate-cases are determined. For deregulated areas, one of the biggest impacts of the move this year will be the requirement of increased premiums in deals. I'm actually surprised I haven't seen more bankruptcies from the higher prices because if a retailer or wholesaler didn't hedge properly and had a portfolio that was effectively short, they will have gotten killed by this move. It also costs more to run a load shop right now because of higher margin requirements from the exchanges and collateral requirements from the ISOs. The memory of this move will be felt in the market for years and it will be reflected in higher prices for consumers.

This one is very tough to answer but going to try to break it down a bit by region and say what I believe the major issue is, if there is one. That said, my expertise is in the northeast and while I know the other regions and am familiar with many of their issues, there's probably someone better to answer. In general, I'm more concerned with a cybersecurity/hacking issue than a supply/demand balance issue

PJM: No concerns. If anything, PJM is oversupplied and I think it will remain that way for a while.

NY and New England: No real reliability concerns but there will be issues with price due to gas deliverability. The NIMBYism of this region is huge and could cause long term problems but if the off-shore wind programs develop as planned, they will be totally fine. Just a note, as planned to me means a couple year delay for me. Nothing ever goes exactly as planned in this industry and there will always be someone suing you that will cause a delay. Getting rid of the Jones Act could help too, that is an outdated and idiotic piece of legislation that should have been dumped many years ago.

MISO: The footprint of MISO is huge so there will certainly be locational (congestion) issues that come up but as a whole I think the area will be fine. I feel like I have been hearing about capacity shortages in MISO Zone 7 for years and there have been zero blackouts so that's a major reason why I am not concerned. There's a greater risk here than in PJM.

ERCOT: What many people don't realize is the ERCOT market is behaving exactly as it was designed to. The incentive for new generation is provided by the extreme high prices from shortage events. From a reliability standpoint, I believe this to be a horrific design because you have to have shortage events where prices spike to incent the market to build. Without them, prices stay low and no one builds until load growth overtakes supply growth and you get more shortage events, which incents build and so on. Because of this, there will always be risks of blackouts and reliability issues.

CAISO: Of the regularly traded competitive markets, this is the area where I am least familiar. With that disclaimer, CA has a couple issues that I think could cause reliability issues. The dominance of solar creates a load shape that can be difficult for system operators to manage and CA gets a lot of power from hydro imports. I think the water issues of the west could have a big impact and if CA loses some imports, it could be short power. In order to better manage all the solar, the region needs to install more batteries. I think that's a very solvable issue but the water/hydro import issue may not be something that can really be "solved" outside of finding a new power source and due to regulatory issues, CA will be behind if this happens and could have issues. 

For the other regions (SPP, Southeast...) I don't really know enough to give you an informed opinion of what the regions will look like in 5-10 years. Right now, as NattyPhys said above, the biggest issue is the Southeast and the gas supply. I've heard a rumor that part of the negotiation with Manchin for the Inflation Reduction Act was that the Mountain Valley Pipeline would finally be approved and while that won't help the SE much in the short term, hopefully that means more gas pipelines will be looked at for the positive reliability and price impacts they have and that could help the Southeast.

Aug 2, 2022 - 9:45am
marcellus_wallace, what's your opinion? Comment below:

Couple thoughts...

-Repealing "Jones Act" will do nothing for AGT. All US LNG is a tolling model and the toll to move from T&T vs Texas is probably lower truly. The only time it would have helped was when global LNG was massively oversupplied and AGT would be a premium market (2020)

-Manchin got his deal, the guy really likes natgas and LNG. MVP should be online by 2024 and possibly could be the last trunkline pipeline across a coast we see in a long time.

-While PJM is overbuilt, I think the USA will have one goal which is building as much LNG to pushback on Russia before 2030. No other market is directly competing with US LNG more so than PJM. So while its overbuilt to survive weeks like this, I am not sure PJM will turn into a long-term bearish market. 

-No comments on SPP, its growing to record loads but also not exactly the most stable system.

-MISO has a lot of issues and if it ever does truly go awry that is the case for Henry Hub to go to global prices. 

Aug 2, 2022 - 10:54am
Texas Tea, what's your opinion? Comment below:

Thanks for the thoughtful response.  Power markets are fascinating, definitely a niche space with lots of nuance.  ERCOT is blowing it (I'm in Texas, unlike many of the ERCOT decision makers).

Aug 2, 2022 - 9:20am
ASUgrad2017, what's your opinion? Comment below:

Congrats on the career progression. Seems like it went quickly

  • 1
Aug 2, 2022 - 10:58am
WinnerWinner, what's your opinion? Comment below:

Thank you. It has gone quickly and I am lucky to work at a place where results are emphasized instead of seniority or corporate rules (have to work 2 years doing this, then 2 that and so on)

If there is one general piece of advice I would give people that are trying to get a promotion its to find the knowledge gap in your company, group, etc and fill it. Don't ask, just do it and when you find the answer bring it to the group. You will have not only added value but shown leadership capabilities by taking ownership of something that may not have been yours.

Aug 3, 2022 - 11:54pm
ContangoCap, what's your opinion? Comment below:

Thanks for doing this Q&A.  You may have answered this already but what propelled you to go into electricity trading rather than stay in oil?  Was it because the market when you started out was more opaque compared to the oil market and therefore "easier" to trade in terms of competition?  Or did you just find opportunity to automate/build tools for the power team?

As you can see from my post history, I'm in high school so I don't have any good questions geared towards the energy markets due to lack of experience trading in them.

Aug 4, 2022 - 8:29am
WinnerWinner, what's your opinion? Comment below:

You're welcome and I should have been clearer on this at the start, but I never worked in the oil division of the company. The company was 90% oil 10% nat gas and electricity and I worked within the nat gas and electricity division, which they called energy marketing. I had plenty of interaction with people in the oil business through various programs but never worked with those groups directly.

When I started, I was building tools for the real-time power traders and gen ops desks. This is where reading the manuals and knowing the detailed rules helped the most. I stuck from the rest of my group because even though I was by far the youngest person and had the least experience, I was able to find issues with bid strategies and optimization techniques and improve the P&L of the group, which got me noticed by the trading group and helped me interact more with the traders. Some of the strategies involved handling the gas so that is where I worked with the nat gas traders and schedulers and learned a lot about that business.  

Just being aware of nat gas and electricity markets in high school probably puts you ahead of 99.99% of the population so don't worry about being young and not having a lot of knowledge, you will get there over time.

Aug 4, 2022 - 10:27am
ContangoCap, what's your opinion? Comment below:

This is a very good answer so thanks again for taking the time to answer it without getting too heavy in terminology and/or showing off your knowledge.

Aug 4, 2022 - 8:31pm
ContangoCap, what's your opinion? Comment below:

Actually I do have a question relating to the power markets.  Could you walk us through your experience during Uri in 2021?  You don't have to explain the specific trades you did if you don't want to.  I'm more curious about if you had any interesting conversations with utilities, natural gas suppliers, etc while it was going on or maybe even instant mental reaction you had when it became more clear that Uri was going to more stronger than expected and may actually hurt the grid more than the market was expecting.

Aug 5, 2022 - 7:14am
WinnerWinner, what's your opinion? Comment below:

First of all, I don't actively trade the ERCOT market so I can't really report on trades. I was left to do post mortems on some of the trades and how the ERCOT billing issues and bankruptcies would impact my company and I can't go into detail on any of that.

My mental reaction to seeing it occur was oh shit, this is not good. Because of where prices went, you had to suddenly question every single sale and purchase you made. Daily gas that might have normally cost $100,000 could now cost $25M and with the pipeline issues making sure the gas was sourced, scheduled, etc was more complicated. With the higher costs you had to question whether those prices could even be paid, how deep the bankruptcies would go, how would it impact companies that cross multiple ISOs, etc. Things that people have taken for granted for years quickly became huge question marks and even if you are like me and aren't directly involved in the market, you have to question and review how exposed the counterparties you work with are to ERCOT, which made it a very stressful time. 

Aug 5, 2022 - 9:01am
marcellus_wallace, what's your opinion? Comment below:

Dude you ask all the questions that one will answer in their memoirs one day. Couple quick tidbits. Short of it no one slept for a week.

It was beyond stressful week and times, we had seen Midwest storage drawing super hard and Uri already formed across Western Canada (feb5th or so). Started to then see the Midwest price supply from all regions across North America and basically Chicago demand was still not being met. Risk of major Texas freeze offs then came basically on Tuesday Feb9th. Then the demand story started to build as "Uri" was moving towards OK/TX (not slowing down getting stronger). OK pricing broke basically on Feb10th.  

Friday Feb12th arrived, Texas markets were beyond bid if you did not have a plan going into Friday you were DOA. First we saw, OK go bid, Chicago then TX went into its own world and then finally we started to move gas from California that officially broke everything, Socal Gas was like $100 below its supply sources and it was like $180 or so.

We went home Friday, knowing that there was a major chance that LA would see snow and freeze offs (sunday night). Friday night officially posted on the Governor website the new law to bypass "industrials for human life" after that we saw various Texas pipelines post it and list of what they consider "human life entities". At that point I knew blackouts were going to happen and warned friends not in the industry to get the eff out of Houston. Sunday or so, ERCOT Monday only market gapped from $400 to $1500 or worse everyone knew its was over. 

That entire weekend I saw physical gas trade everyday in West/Midwest/Texas markets it was beyond next level. Usually you see maybe 3-4 trades on the weekend, utilities calling phys guys to reverse a pipe on Saturday cause CO froze off, then another calling on Sunday to go back other way cause OK is still frozen etc...

The following week was even more stressful the whole industry got margin'd mid-week. More stuff happened and then as mentioned every credit department known to man went to work to figure out if they even will get paid.

That's a bit of it...anything beyond probably find in some book some day.

Aug 14, 2022 - 5:23pm
Close4Coffee, what's your opinion? Comment below:

If I read your background correctly you started an MFE after 11 years in the industry and after receiving a significant promotion. How did you balance your coursework with that and did you find benefit in getting the degree that far into your career? Was it online/at night or was it a traditional program?

I'm about to go into a quantitative masters more than a few years into my career and I'm curious about your experience given it is a less common path.

Aug 15, 2022 - 7:30am
WinnerWinner, what's your opinion? Comment below:

I decided to do a masters once covid hit since i had nothing else to do with my time and the tuition wasn't a problem for me. I received my promotion basically the same week as school started since it was due to my boss retiring. Part of the reason I started was that I didn't believe he was going to retire (he had talked  about it for years) and I thought I may need to start looking for a new job and having the masters would help.

My program was a part-time. I had class at night but otherwise did most of my work on the weekends. I had zero prior finance experience so I am happy I went but the program has been more useful from a personal investing/trading perspective than for work. I really don't know what my future will hold, but I highly doubt I will be in a similar role to what I am doing now in three years. Had some personal health issues and have very much changed perspective on my career where the stress of a trading job doesn't really seem worth it for much longer. The degree will help whenever I figure that out.

Aug 16, 2022 - 8:48am
SkewSeeker, what's your opinion? Comment below:

How is VaR defined at your shop?

Is the max allowed (reasonable) loss your book can have on any single day or is it more related to the collateral posted with the ISO for that particular book?

Aug 22, 2022 - 8:57pm
Balmomambo, what's your opinion? Comment below:

Thank you for the Q&A WinnerWinner,

For your default service deals, are you hedging mostly through exchanges with maybe some requests to banks/large shops? Curious to know how you think about your collateral postings between exchanges/counterparty ISDAs

Aug 23, 2022 - 11:43pm
WinnerWinner, what's your opinion? Comment below:

You're welcome.

I don't really want to reveal too many details here but it's all of the above. We have to balance current status with banks, exchanges, utilities to choose the best option for each one. Every deal is different and how you look at it will depend on what you currently have on, when the deal expires and the roll off, etc. Generally, I do my best to match the status of PGs so that I can work on a cash in-cash out basis and just deal with the timing. Also have to keep in mind that if you have an existing deal, you are generally in a receivable position from the utility because they pay after the fact and that's for the whole price, not just the mark to market deltas.

Aug 23, 2022 - 9:00pm
nattyphizz, what's your opinion? Comment below:

Some of this is better on PM - but by all means go for it.  

I have never truly been part of a power business, but have sat across the row from power guys for half my career (hmmmm..PJM forever dead  ...circa 17/18/19 thought) 

So you talked about load following. Few questions:

1. What are your thoughts about load growth now?  Prior to covid did you model load growth in your load following deals, or was the thought that DSM initiatives would largely offset any growth.  

2. Not sure if this is really a question but would love your thoughts.  If you had a 3 year load following deal, covid happens and we see lower loads, are you longer delta that what the new load shape is.  How did you manage your y2,y3 load shapes. 
3.  As the economy reopened and we are seeing load growth (could argue the load growth was just masked by covid and I think whether we are seeing load growth is a contentious topic between gas vs power traders), are you all of a sudden short delta for your LF deals.  

4.  have the ISO margin requirements ballooned with the rise in rates?  I know one of the biggest reason why we avoided SPP was the margin was just too expensive.  

Just seems like a PITA to manage these last few years, among the rumors I've heard of various LF books blowing up

Maybe this is better for PM, but you mentioned Miso LZ7..obvioulsy palisades retirement happened but if you look at the gas burn in mich, its been off the charts vs rest of the Midwest (total dud).  Maybe bullish LZ7 is already here? This is more for the vets and not pub forum material.  

Aug 24, 2022 - 12:01am
WinnerWinner, what's your opinion? Comment below:

Gonna try to answer as best I can...

1/2. During covid load changes really depended on customer type. Industrial and commercial customers got killed, residential used more in many places. You have to look at each deal differently. I did historically model load growth into deals but even now load growth is coming in relatively isolated forms. Dominion has load growth from server farms, many places, especially Texas are seeing load growth from crypto mining. Supposedly the switch from ETH to ETH2 will make mining more efficient but I'm not a crypto expert to explain any detail. There has certainly been load growth from pre-covid but I wouldn't call it classic GDP v electricity usage load growth. I think a lot of it is behavioral changes that have caused the load growth. For example, people working from home for a day don't turn the AC down. The office they were in probably still has people and is still running their computer so the office uses the same electricity. There is zero increased economic output from this behavior but there is a load increase. I can't say for sure this is the cause of some of the load growth we are seeing but its my best guess right now. You will have to pay me to tell you how I managed load growth during covid but my P&L says it worked. I'm not gonna reveal all my secrets here (or anywhere)

3. Yes and it sucks royally. It's one of the reasons that managing these deals has been damn near impossible. Sure I could have been crazy long, but thats not really money made managing a load following deal, thats spec trading and claiming the load following as a hedge. The deal itself has probably lost money even with a long delta hedge. I've managed my deals properly to avoid losses but I'm not making a bunch of money this year with prices skyrocketing. Right now it's simply about surviving and getting to the other side as unscathed as possible.

4. ISO margins have nothing to do with rates. The ISOs all have different rules on collateral but generally it's based on past billing. Hedges don't impact what you pay to the ISO unless you have done them physically/using ISO scheduling options, which rarely happens. As a result, the amount billed has increased for the same MWhrs. This increases your market activity and increases the collateral requirement. The amount you are charged by the bank to get the collateral may have increased with rates, but the rates have zero impact on what the ISO says you have to post.

There's many reasons why gas burn is strong and load growth is one. The other major two IMO are less coal is running (duh) and low capacity adjusted renewables

Sep 16, 2022 - 4:56am
Matsby, what's your opinion? Comment below:

1. How many years will it take to become a junior trader? It seems that the graduate program requires many years in the middle office, which is not as good as the S&T in banks because it only takes 1-2 years to be a trader.

2. How much does a junior trader get paid on average?

3. How long between a jr trader and a senior trader? I have noticed that the salary gap between juniors and seniors in commodity trading is very high. When you are 30+, you were considering retirement. However, the pay at the start seems much lower compared with IBD and S&T.

Thanks for your time!

Sep 17, 2022 - 10:48am
WinnerWinner, what's your opinion? Comment below:

1. Can't really speak to a bank since I have never worked for one. Doing time in a graduate program with some mid office work isn't a bad thing. My experience (and this includes myself) is that traders are very impatient. Doing the mid office work will help because you will understand the job and not be so hard on them once you are a trader. Assuming you start somewhere as an entry level analyst, put in the extra effort and let it be known that you want to be a trader, I think you should aim for a junior trading role around the 3-5 year mark. 

2. Junior trader for power I would assume around 80-100k salary (location, company, payout structure, need to be taken into account) with a bonus dependent on P&L and business success. If you are at a pure prop shop, salary could be lower but percentage of book a bit higher so the upside is huge. Trading for a gen owner or other physical business where you are just hedging power plants, gas production, etc may have a slightly higher base but very limited upside and probably a corporate bonus structure (X% of salary). I don't have traders work for me directly since I manage all the quant side so this is just my guess. Maybe some of the other senior people in the business can give you a better idea.

3. This depends on how good you are. The way my company operates, you aren't getting promoted from junior trader to trader/senior trader unless you make enough money to support the promotion. Our junior traders are generally told make 2M prop trading and a promotion to trader becomes likely. We have people that have been junior traders for years because they consistently make 1-1.5M. That's a profitable spot for the desk so there is no reason to get rid of them and they will make a decent living but its not really enough to earn a promotion. These guys could absolutely leave and get a trader spot somewhere else but that's where you have to take into account quality of life, total pay, location and it may not be worth it for them. That's an individual decision for any trader.

Comparing pay for IBD, yes, starting pay will be less but its a completely different business, role, and work hours. Assuming you are thinking towards the prop end of trading, the upside for a trading role is unlimited. IBD you are generally on a set pay and promotion structure but trading shops generally don't operate that way. The high performers will be moved up quicker and the upside for a role is huge.

Hope this helps

Sep 18, 2022 - 2:37am
Matsby, what's your opinion? Comment below:

First of all thanks for reply!

in 1., in the 3-5 years before being a jr trader, how much can I make?

and in 2., you mentioned the pure prop shops and the physical business. Could u plz give some examples? Glencore, Vitol, Cargill... are these trading houses physical businesses and the HF like citadel, optiver are prop shops? I noticed that many banks have commodity desks too, are they just market makers and executors?

and to traders, their bonus is totally dependent on P&L so there is no average guarantee bonus in IB (like 50% of the base would be the bonus), and how much can make as a trader only depends on me? which means others' salary experience is useless?

Thanks again for your comment, it really helps!

Sep 18, 2022 - 11:05am
druckmiller, what's your opinion? Comment below:

Thank you for doing this.

Any tips on how would you go about trading other ISOs or learning a new ISO from scratch. I trade completely physical prop and just want to have access to as many markets to make the most of all the opportunities.

For more context, I trade eastern power and want to learn more about ERCOT/SPP and eventually trade CAISO/AESO etc

Probably based on your previous responses on this thread, the ISO training materials are a good place to start but how do you learn more about which intertie nodes you can trade and gain confidence to put risk behind those trades. All I do right now is have various stuff set up on YE to look at DART spreads and track prices at these peripheral ISOs but nothing too crazy.

My assumption on gaining such experience is probably move to a shop/work with ppl specializing trading that ISO and not something you can pick up on your own. Happy to hear your thoughts. Thanks again.

Sep 18, 2022 - 12:21pm
WinnerWinner, what's your opinion? Comment below:

Think back to how you learned the ISOs you currently trade and go back and do that all over again. Read the manuals, learn the gen stack, transmission system, price formation process, etc. While that information is available in different ways/places for each ISO, its all out there so go find it and start studying. If your company has traders in those markets already, ask them for help. What are you looking for me to say? You have already learned a few ISOs and assuming you have done it successfully, you should have a process already. If you haven't done it successfully, why are you trying to learn other ISOs when you should be focusing on the areas you operate in?

The only outside thing I would say to determine where to go next is to look at is the liquidity of the markets. ERCOT has way more liquidity than SPP, so you should probably learn ERCOT first since that is where the activity is. I'm assuming you have ICE, so you should be able to pull all the trading volumes to analyze this in full.

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Sep 19, 2022 - 11:01pm

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Sep 20, 2022 - 4:34pm
WinnerWinner, what's your opinion? Comment below:

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Sep 21, 2022 - 12:06am

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