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Warm November Has Energy Players Running For Shelter

The warmest November in North American history has sent some U.S. power companies scrambling to buy protection against the rest of the winter being equally mild. Weather derivatives traders in New York reported a rush to buy protection among east cost energy companies that balked at their chance to hedge their weather risk for the winter in October, when most mid-western energy players, such as Alliant Energy in Madison, Wis., bought protection (DW, 12/3).

The trader said Syracuse, N.Y.-based Agway Energy Products and Patterson Energy Group in Long Island, N.Y. were both shopping around for protection. "We've been getting a lot of calls from east coast companies looking to hedge a portion of their weather risk from January through March because they didn't make a move in October," said one trader. "Back in early fall they didn't think they needed to worry. But the warm weather has sent them running for protection." Spokesmen at both companies declined comment.

Most of the deals involve companies seeking to buy a heating-degree day put on the average temperature in the east coast region, such as New York, New Jersey, Connecticut, and Pennsylvania, from January through March. The derivatives pay out if the temperature is warmer than the 10-year average. The average notional size is USD1-5 million.

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