Traders Bet on Cheap California Power. Then Blackouts Hit.
Transmission towers alongside a Pacific Gas & Electric Co. substation in Crockett, California, U.S. (Photographer: David Paul Morris/Bloomberg)

Traders Bet on Cheap California Power. Then Blackouts Hit.

Ahead of California’s rolling blackouts, traders and power producers boosted bets on falling electricity prices. Some of them may be caught short after the outages sent prices surging.

In early August, generators and merchant traders were the most bearish on California power futures in at least two years, amassing a net-short position of 14,939 futures and options, according to Commodity Futures Trading Commission data. While some of those bets were unwound leading up to the blackouts, wagers on falling prices continued to eclipse bullish bets through Aug. 18, days after the outages.

“Traders expected Covid-19 to keep eating into electricity demand, and gas prices were forecast to remain subdued relative to historical levels,” said BloombergNEF analyst Brian Bartholomew.

Traders Bet on Cheap California Power. Then Blackouts Hit.

Then a heat wave gripped the West Coast, sending electricity prices soaring exponentially and triggering the first rotating blackouts in California since the 2001 energy crisis. The first financial loser to emerge was Portland General Electric Co., which late Monday reported an estimated loss of $155 million on trades it made in the weeks before the spike. The Oregon utility didn’t disclose the details on the transactions.

The company was up 1.4% at 10:02 a.m. in New York after losing 8.4% on Tuesday.

PGE has placed two employees on administrative leave and begun an investigation into its risk management policies, procedures and people.

©2020 Bloomberg L.P.

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