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Calculation of a risk measure for the net system load profile

By Ken Russell, Pietro Cerone and Vivien Challis


The Independent Pricing and Regulatory Tribunal (“IPART”) regulates the prices electricity retailers can charge their default customers. This regulation takes the form of a default tariff. Currently, IPART considers the NSLP of each standard retailer, and any projected future changes in these NSLPs, before setting tariff levels for default customers. In the process of constructing the default tariff, IPART assumes that the cost of purchasing energy is equal for all retailers. IPART also makes no allowance for hedging costs, which will vary depending upon the NSLP of the electricity retailer. If one retailer has more NSLP volatility than other retailers, their hedging costs for default customers will increase. Under the current default tariff structure, these increased hedging costs become an unrecoverable expense. The aim of this project is to explore the volatility of Integral Energy’s NSLP, relative to that of other retailers, with a view toward developing a risk multiplier that accurately and reliably quantifies the volatility differences between NSLPs

Topics: Energy and utilities, Finance
Year: 2007
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