ENERGY Hedging helps even if you had to learn it the hard way

Sep 01, 2007 | 01:35 PM |

For many energy consumers in the metals industry, the crisis began in 2004 with soaring global consumption and the subsequent supply pinch that accompanied Hurricane Katrina the following year. But large buyers on the West Coast are guided by an experience that began three years earlier, rooted in a period not only of rocketing prices but also power interruptions and, ultimately, charges of market manipulation by energy traders.

"That crisis began because of a fictitious shortage that was never there," said Jack Stutz, president and chief executive officer of Tamco Steel Inc., a Rancho Cucamonga producer of steel reinforcing bar that had to deal with the disruptions.

Moreover, consumers in California, where imperfectly conceived power deregulation legislation helped facilitate gaming the system, continue to deal with the hangover from the 2000-01 electric power emergency, which also was accompanied by a spike in natural gas prices that took them to nearly $20 per million British thermal units from less than $3 per mmBtu. A panicked state government made a wrong bet with long-term forward purchases of electricity at prices that have since turned out to be grossly inflated, a penalty that's still part of consumers' bills and that won't go away completely until next year.....

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