Hi,I am getting acquainted with the power business that banks and other firms have been investing in heavily and have a few questions. If anybody would be kind enough to answer them:A. What is the meaning of "physical trading" of power? Who are the counterparties and how do the traders get in touch with them?-- especially given that electricity cannot be stored (in usable quantities.)B. As I understand the following are in general profit-creating sources on energy desks --1. Mkt-making: Buy and sell energy without actually owning the generation, dist or transmission.2. Structured products: Help firm hedge their price and volume risk by selling them structured contracts.Are there any others? Are trading firms involved in the ISO business also? Are they involved in ancillary services like looking after reserve capacity in case of emergency? C. What is the responsibility of Houston-based power desks of investment banks or various firms that are bought by i-banks but are based in Houston/Cali? What is the responsibility of an energy marketering firm like Sempra Energy Trading? What is the diff. between the above two? D. Why are so many marketers (or i-bank desks) which are involved in physical trading based in Houston, Texas? Is it because of proximity to Nat-Gas hubs? De-regulation thru ERCOT?E. What happens if the trader is long a contract and cannot unwind or hedge it?What happens if the trader is short a contract and cannot unwind or hedge it at the end? F.What are the most common causes for the following risks in this field --Price/market/weather/economic risk to the generator who is long the price and the user who is shortVolume risk to the utility (due to unpredictibility of consumers usage)Time riskCounterparty risk to the market-makerAre there any other important risks to look at?G.BasisWhat are the various forms of basis involved for location aways from the trading posts of COB, Az, PJM, etc.H.De-regulation:Why are some states not de-regulating? Is this because of fear arising out of the Cali crisis or are they other rational/political reasons? On the other hand, why is the NE and Texas region so un-regulated?I.What is a good source to read up LMP? I am interested in understanding why some states do not use LMP. J.Are energy marketering /trading firms concentrating mostly on Wholesale (with utilities) or Retail trading (with industrial/residential/commercial end-users)?I am looking at http://www.ercot.com/services/rq/ERCOT_Market_Guide.doc
and it seems that there are not many Retail consumers (pg 4) -- what is the reason for this?K.What is asset optimization? I have heard this term for trading desks of utilities firms. That their main goal is asset opt. and not profit generation (Was Enron a counterexample to this?)THANKS!