Replies

Brokers play a very important role in connecting companies that have spare capacity, with companies that need that spare power.

Exactly. That's how markets are made efficient.

Thanks to brokers, middlemen, and interstate highways, consumers don't have to grow their own tomatoes or buy them from the farmer down the road - they can buy the cheapest ones available that week whether from down the road or across the nation.

The lack of knowledge of basic economic principles in the California legislature is simply astounding.

Thanks to brokers, middlemen, and interstate highways, consumers don't have to grow their own tomatoes or buy them from the farmer down the road - they can buy the cheapest ones available that week whether from down the road or across the nation.

LOL! Yea You're right it's always cheaper when you have to pay a middle man, that's why the Costco's and Home Depot's of the world don't do too well...NO middlemen/brokers to buy from...

It's always much cheaper to buy tomatoes from a middleman profiting from producing nothing than it is directly from the man down the road that produces them.....< /sarcasm >

Sorry, but in your example it isn't the Ca. legislators who don't understand "basic economic principles", it's you.

Exactly. That's how markets are made efficient.

One of the services I saw brokers, like Enron, bring to the electric utility marketplace, was a knowledge of 'hedging' that most electric utilities didn't understand.

Oil and then natural gas became commodities traded on various options markets. Oil & natural gas can be converted to electricity or in some cases subsituted for electricity. Aluminum, is also a commodity traded on options markets and electricity is a major component in its production.

Until Enron and some other traders entered the market, most electric utilities I knew just bought and sold electricity. After the traders entered the market, I saw a number of the smarter utilities, learn from the traders in ways to "manage" their future fuel prices so they in turn could manage their costs to their consumers. Not all did a good job of this as it takes some OJT to figure things out.

One utility I know was concerned about the potenial for natural gas fuel escalation and so as part of a powerplant contract made the developer purchase some natural gas reserves in Canada. That project during the 2000-1 power crisis was producing all the power it could at very, very attractive prices.

In short the traders helped change the way some utilities were doing business. The way it happened was by being a competitive threat. That in turn, forced the utility to adopt "best practices" to survive the competitive threat. Electric utilities, as regulated monopolies, have been very slow in adopting "best practices." Part of what I believe FERC is trying to do with 'deregulation' is force utilities to adopt best practices by making them have to 'compete.'