On Friday, the NY Times ran an article about the electricity grid in the US, focusing on New York. The article written by reporters Julie Creswell and Robert Gebeloff titled Traders Profit by Placing Bets on an Overworked Power Grid was in the Friday August 15 newspaper. The story is when power is moved from where it is produced to the consumer, there are various reasons why more power is needed than is normally provided. The electric companies are very good at projecting normal demand, but with climate change and normal maintenance spikes happen. To protect the companies from price changes, hedging or congestion contacts are sold. As in every commodity that offers hedge contracts, the majority of buyers wish to protect themselves and hedge, other buyers see the potential spikes means potential profits or speculate on when the spikes will occur. It would appear, just following the regular maintenance schedule will make you money, but when the weather is too hot, consumer demand jumps and healthy profits are made. Hopefully, the electrical company is not speculating in the congestion contracts, for one could see adding the hot weather would automatically mean more maintenance shut downs to achieve higher prices.

Linking to dividend paying stocks, some of the best performing stocks over the generations are investor owned utilities, as a shareholder you may want to know their policy on congestion contracts and the percentage of resources they allocate to them. Is the goal hedging or speculating? This is another area where governments try to protect the industry, but may or may not be achieving the desire result of lower electricity prices. From an investor point of view, the millions of customers who need electricity to live their lives is the reason why utilities are such a good investment; the bulk of the customers pay their bills and the utility pays a steady dividend.

There are more questions than answers, till the next time – to raising questions