Madison, Wis.-based Alliant Energy recently hedged a portion of its weather risk for the winter by buying a heating-degree-day put on the average temperature in Madison from November through March, said Bill Zorr, general manager of gas trading. In the transaction, Alliant will receive a payout from Hess Energy Trading Co. if the temperature is warmer than the 10-year average in Wisconsin. Zorr declined to specify the exact sum the company will receive, but said it was enough capital to cover the lost revenue the company would have received if it sold gas to customers during a cold winter. If the winter is colder than the 10-year average then the deal expires out-of-the-money.
Alliant hired TFS to broker the deal. Zorr said it was the first time Alliant had used a broker. Using TFS allowed Alliant to remain in the background rather than marketing the hedge on its own, which it has traditionally done. "We felt that using a broker this time around would allow us to get a better bid for the product," Zorr said. He declined to specify how much of a cost saving it gained by using TFS or why it had chosen that broker. Officials at TFS declined comment.
