ABSTRACT
Risk management will be a permanent feature of management of power providers and power users. The techniques of modern finance have a great deal to contribute to risk management but to apply them successfully requires that they be applied in the unique context of electric power. In normal times the price basis between them is almost negligible, and it is clear that they inhabit a single market for wholesale power. Crisis is the event that demands prompt and decisive action, but panic is the condition that makes decisiveness very difficult to achieve. For crises with wide impact on the spot price however, the daily spot market provides no control of price risk. Power options actually provide a high degree of management control over price spikes in the wholesale market. The power trading market provides the industry with forward contracting prices that are in the nature of forecasts of the average price to prevail of a given month in the future.
