Power Trading -- Electricity Trading

Can anyone tell me the state of power trading now? Is it in ascent or decline? I know before Enron, it really took off but it caught heat after they fell. What is the state of the market now?

Are there more jobs being created in power market prop shops? Are firms/banks cutting bank on power trading and therefore less jobs?

Are more hedge funds engaged in trading electricity? I know DC energy is a well known hedge fund trading on the PJM.

Can working in the prop desk at a Utility/Generation firm leave you with great exit ops? To other hedge funds or the prop desks at IB's?

Can working in the prop desk at a Utility/Generation firm allow you to switch to other commodities ? NatGas/Crude?

Region: 
United States - Northeast

Comments (29)

Jan 15, 2013

Seems like a good place to be man. However Monty09 is an expert on this stuff if I remember correctly. I think he is a power trader, or was one. He's always helpful. Might want to PM him or something

Jan 16, 2013
kyleyboy:

Seems like a good place to be man. However Monty09 is an expert on this stuff if I remember correctly. I think he is a power trader, or was one. He's always helpful. Might want to PM him or something

I'll definitely try to reach out to him or I hope he see's this message and responds.

Jan 15, 2013

It's a rise in the Northeast and ERCOT markets due to regulations and the grid. Voliatility has picked up.
Switching to natty is possible, crude not so much as crude is not relevant to oil and gas.

Jan 16, 2013
marcellus_wallace:

It's a rise in the Northeast and ERCOT markets due to regulations and the grid. Voliatility has picked up.
Switching to natty is possible, crude not so much as crude is not relevant to oil and gas.

Hmm, but Natural gas prices are fixed to oil prices -- or they used too until 2010 in North America. Natural gas is a "natural" by product of oil drilling. You can drill for dry natural gas but no one is doing that now with the ridiculous low prices. Though for the rest the world natural gas and oil movements are practically the same.

Jan 16, 2013
sillymonkey123:
marcellus_wallace:

It's a rise in the Northeast and ERCOT markets due to regulations and the grid. Voliatility has picked up.
Switching to natty is possible, crude not so much as crude is not relevant to oil and gas.

Hmm, but Natural gas prices are fixed to oil prices -- or they used too until 2010 in North America. Natural gas is a "natural" by product of oil drilling. You can drill for dry natural gas but no one is doing that now with the ridiculous low prices. Though for the rest the world natural gas and oil movements are practically the same.

This is less and less the case as Hub pricing is becoming the norm. Russia is the main holdout on this and they are slowly starting to give in.

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Jan 16, 2013
sillymonkey123:
marcellus_wallace:

It's a rise in the Northeast and ERCOT markets due to regulations and the grid. Voliatility has picked up.
Switching to natty is possible, crude not so much as crude is not relevant to oil and gas.

Hmm, but Natural gas prices are fixed to oil prices -- or they used too until 2010 in North America. Natural gas is a "natural" by product of oil drilling. You can drill for dry natural gas but no one is doing that now with the ridiculous low prices. Though for the rest the world natural gas and oil movements are practically the same.

Bit beat up, long day but will try and keep this short.

Natty pricers were never EVER fixed to oil prices. There is an inherent energy assumption based on science that an E&P would have used historically to figure how to best allocate resources, from a trading perspective it was a silly assumption guys like Icahn make/made its based on a E&P being rational and the market being rational and technology and etc..... The other part you already answered yourself, google/chart natty/crude ratio from 2002 to today and look at the pattern pre-2008, post 2008, post 2010.

"Natty is a product of oil drilling"...Associated production of natural gas is created by wet NGL/Oil drilling, but that only affects the Natural gas Supply/Demand the crude people could careless they just need to get rid of it. Again no this is not the case there is thing called 4.2tcf of storage, in the short-term storage will always run over any trend in something like crude prices. Again the crude trader does not give a damn about where natty is, the natty guy may for his S/D assumptions.

"Ridiclous low prices"... Depends on rigs, IPs, Convential vs Unconvential, hedges etc...my brain hurts too much to sum this all up, either way there is a equilibrium where convenrial declines vs unconvential gains meet and breakevens of the major swinging plays.... It's not at $1.50 or $4.50 between that who knows...

I do not care about the rest of the world, you want to work in North America we look at NAM. There is also a reason the rest of the world works in such a way and NAM does not, some of it is regulation and some of is that pre-2008, post-2008 chart I talked about.

Lastly, go back and search the many forums I have explained by physical crude trading vs natty/power is very different due to transparency, standardization of contracts, skillsets.

Jan 17, 2013

Marcellus I can tell you have a very strong grasp of the oil/gas markets. Do you however know by any chance info on the power markets that can really help me out.

Can an individual on their own trade electricity futures on the ICE for example? Or do you need to have the backing of an institution such as a utility/bank/hedge fund to be able to trade such a commodity? Most of these institutions are large players in the marketing and distribution of electricity. They have weather models, meteorologists, access to the grids, etc to influence electricity prices. However, can a small trader/individual decide if they wanted t trade power to do it successfully on their own?

Jan 17, 2013

Sum up your other questions...

Individual - To trade physical energy you need very good credit so basically impossible, as well you may need access to some physical assets depending on the market. Financially, sure as long as ICE gives you credit, but again unless you are a major fund with real good credit that is not happening. So no basically all trade is done by major firms.

Banks - More exiting then entering, rules/regulations have changed, dodd-frank prop rules, position limits, FERC lawsuits etc..Risk/reward not good for them.

Hedge Funds - More entering the space as banks exit, same trend across most FICC products.

Utility to Marketing firm/Hedge fund/Bank - Yes happens all the time, the skills you learn at a utility be it scheduling/trading/optimizing are the same ones needed elsewhere only thing is you do not have "P&L" and your job is to mitigate cost vs create gross margin. Btw, I have also written about this topic extensively before, use the search to find it. Motivation of a utility vs trading and how the job differs.

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Jan 17, 2013
marcellus_wallace:

Sum up your other questions...

Individual - To trade physical energy you need very good credit so basically impossible, as well you may need access to some physical assets depending on the market. Financially, sure as long as ICE gives you credit, but again unless you are a major fund with real good credit that is not happening. So no basically all trade is done by major firms.

Banks - More exiting then entering, rules/regulations have changed, dodd-frank prop rules, position limits, FERC lawsuits etc..Risk/reward not good for them.

Hedge Funds - More entering the space as banks exit, same trend across most FICC products.

Utility to Marketing firm/Hedge fund/Bank - Yes happens all the time, the skills you learn at a utility be it scheduling/trading/optimizing are the same ones needed elsewhere only thing is you do not have "P&L" and your job is to mitigate cost vs create gross margin. Btw, I have also written about this topic extensively before, use the search to find it. Motivation of a utility vs trading and how the job differs.

Marcellus, I can't thank you enough for the advice!! I can only wonder if you name has any relation to the marcellus basin here on the North East. lol
Are most (private) utilities expanding their trading unit? Shrinking? Are they relatively safe jobs? Is their security?
Do you think working at a Utility primarily engaged in power and natgas can help you gain a position in oil strategy/research/trading?

Jan 17, 2013
sillymonkey123:
marcellus_wallace:

Sum up your other questions...

Individual - To trade physical energy you need very good credit so basically impossible, as well you may need access to some physical assets depending on the market. Financially, sure as long as ICE gives you credit, but again unless you are a major fund with real good credit that is not happening. So no basically all trade is done by major firms.

Banks - More exiting then entering, rules/regulations have changed, dodd-frank prop rules, position limits, FERC lawsuits etc..Risk/reward not good for them.

Hedge Funds - More entering the space as banks exit, same trend across most FICC products.

Utility to Marketing firm/Hedge fund/Bank - Yes happens all the time, the skills you learn at a utility be it scheduling/trading/optimizing are the same ones needed elsewhere only thing is you do not have "P&L" and your job is to mitigate cost vs create gross margin. Btw, I have also written about this topic extensively before, use the search to find it. Motivation of a utility vs trading and how the job differs.

Marcellus, I can't thank you enough for the advice!! I can only wonder if you name has any relation to the marcellus basin here on the North East. lol
Are most (private) utilities expanding their trading unit? Shrinking? Are they relatively safe jobs? Is their security?
Do you think working at a Utility primarily engaged in power and natgas can help you gain a position in oil strategy/research/trading?

Not addressed to me and marcellus_wallace is far more knowledgeable than I, but *generally* these positions won't help with oil. I've seen it done with one person who started as a power trader, moved to natgas, and demonstrated a keen aptitude for crude over the course of a few years and they let him switch from natgas to crude. But he's somewhat of an exception (and a fucking baller). Anyways, there's definitely some hiring going on at these shops, but I'm not sure the extent of it. It doesn't seem like they're shrinking. The jobs are relatively (key word "relatively", it is still trading after all) safe, as they are pretty good about not throwing you in the fire too early. Your upside isn't as high as with crude (generally), but you also arguably have slightly better job security (not really qualified to speak on that though so don't take my word for it, just my observations).

Check out EDF Trading and GDF Suez.

As somebody else said, as banks exit hedge funds enter, but be aware many of these funds are very very niche.

Jan 17, 2013

I've been in the industry for nearly 5 years, and it has been in a decline since about the beginning. Low gas prices make power prices not nearly as volatile, and less volatility equals less opportunity. That being said, lots of small HFs have entered the space to take on traders that banks have let go, doing things like congestion trading in the northeast and ercot. There are definitely still opportunities out there for entrepreneurial spirits.

As far as switching to other energy, nat gas is a clear and easy jump. Most power traders trade gas anyway for liquidity purposes. But oil and products are a bit different. Most of the big names are physical oriented, and staring at ICE all day doesn't really develop the people skills needed to sell a tanker of gasoline.

Jan 18, 2013
oversold:

I
As far as switching to other energy, nat gas is a clear and easy jump. Most power traders trade gas anyway for liquidity purposes. But oil and products are a bit different. Most of the big names are physical oriented, and staring at ICE all day doesn't really develop the people skills needed to sell a tanker of gasoline.

Thank you, could we please bold this large font for anyone asking about energy trading in the future.

If you enjoy looking at trends, data, charts, constantly re-affirming data all day and generally dislike customers and people and like to talk to a screen with a "green/red" button. Power/Natty is for you.

If you are a people person, who wants to sit on a phone all day maintaining relationships, looking through old/new contracts to find "hidden free options", searching for obscure deals others ignore, than physical crude/products is the way to go. Physical crude traders are not hedge fund dudes trading 1000s of lots of WTI-Brent spread, they usually do not wear a lot of VAR and instead make their money on best optimizing an liquidity market place.

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Feb 12, 2013

I was late to the party

Nov 4, 2014

for anyone really, I am not new to trading but I am new to power trading. If I am a real time power trader at lets say Dynegy, and I have book or portfolio of 750MW to optimize with DA book (pardon if lingo isnt exactly right) . And lets say I buy 350MW @30 assume no lmp costs, and sell 350MW at 30.27 45 minutes later, what is my profit on this trade. Also Lets say I bought the 350MW first minute of HE15 what time frame am I selling it if it is 45 minutes later. The HE15 period still or HE16 period. Just trying to understand basic trade math and what real world physical trade for "Dynegy" would look like. Apologies if that doesnt completely make sense, starting from near zero on actual trade lingo.

Nov 5, 2014

In the east - you only have a 40 minute window after the top to tag something up and trans will be tough if you are not on firm already. If a smaller hub within a hub - it's highly possible since no trans is used. I would not even attempt if more than two wheels. The time period you used would not work in real time. If you sell at 1530 and can get everything tagged up - you book all in HE 15. However - the fines that could be incurred if this deal goes south could be many times over any possible PnL you make so most traders would avoid this type of deal.

Example - if I lose a unit 30 minutes after the top and now short 100 mws - its cheaper for me to pay a premium in the spot market to stay whole than run the risk of incuring the fees from ISO, unused trans and/or the asset. In a $18 HE 1-5 market I have lost a unit and buying a $22 strip to keep my asset happy. Power is one of the few markets where a losing trade is still the correct trade as some EMAs have you paying max gen cost plus xyz fees

    • 1
Nov 5, 2014

bump

Nov 5, 2014

You should lookup "Financial Trading" "Physical Trading" "Commodity Trading", etc, and read up more from other threads.

Also, get "prestigious" out of your head.

Nov 5, 2014
jargon223:

You should lookup "Financial Trading" "Physical Trading" "Commodity Trading", etc, and read up more from other threads.

Also, get "prestigious" out of your head.

Thanks for the tip. And I'll rephrase my question: which of those three options tend to pay their traders the most -- and how difficult is it to break into a utility trading operation as opposed to a BB or E&P firm?

Nov 5, 2014

bump

Nov 5, 2014

It's asset-backed yes? Spec desks don't optimise around a station's position. The bottom line is the budgeted amount in the plan for a given asset rather than P&L as such, but is comparable if you were to transfer across.

Most of the traders on my desk started out in similar positions. If you get good at those things you list and gain some knowledge of options, structuring etc. you'll be in a strong position a few years down the line.

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Nov 5, 2014

Ok, great thanks for your insight. I've noticed through Linkedin that some students get power trading positions right out of college, it is rare, but I was hoping to do the same. It is good to know that you know traders who have started down this route. It must mean that the skills are transferable. I am leaning towards taking it and hopefully get a position on a desk in a few years.

Nov 5, 2014
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