(Bloomberg) — The financial losers of California’s rolling blackouts are beginning to emerge.
Portland General Electric Co., the utility that powers almost half of Oregon, plunged the most in five months after the company said it’s poised to lose as much as $155 million due to trades it made this year as wholesale electricity prices surged.
PGE fell as much as 14% to the lowest level in over four years before paring some losses. The drop comes the morning after the company disclosed that its traders increased the volume of bets late in the second quarter and into the third, “resulting in significant exposure” when a heat wave gripped the West Coast this month, sending electricity prices soaring and triggering the first rotating blackouts in California since the 2001 energy crisis.
The trades have so far resulted in realized and unrealized losses of $127 million, which are estimated to reach as high as $155 million in the third quarter. Final losses could exceed that amount. PGE has placed two people on administrative leave, pending a review. Its board has formed a committee to investigate.
“We see the development as concerning over risk controls employed at the company,” Bank of America analysts led by Julien Dumoulin-Smith said in a research note. He added that’s “particularly glaring” given the company’s involvement in California’s 2001 energy crisis, when it was owned by Enron.
Read More: The Blackout Trade: How a Power Market Went Dark in California
PGE purchases and sells electricity in the wholesale market as a way to meet its retail load requirements and balance its energy supply with customer demand. The company also participates in the California Independent System Operator’s Energy Imbalance Market, which allows the ISO to integrate more renewable energy into the grid, according to a company filing. The volume of energy sold by the company in the wholesale market more than doubled in the first half of 2020 from a year earlier while average prices were down by 32%.
Oregon has long been tied to California’s power market through the Malin trading hub. High-voltage transmission lines can export as much as 4,800 megawatts of power into California, often from Oregon’s vast array of hydroelectric dams. In times of drought, California can also supply its neighbor to the north through those same lines.
“Malin is one of the most active trading points, and it makes sense that Portland General would have a significant position,” said Chris DaCosta, an analyst at Wood Mackenzie Ltd’s Genscape. “It’s not clear yet why they took such a hit. It could be a wrong bet in the day-ahead market or some of their generation went down.”
Guggenheim Securities LLC analyst Shahriar Pourreza called the losses an “unfortunate one-off event.”
“While the announcement is an unpleasant surprise, the loss is containerized to 3Q,” Pourreza said in a research note.
The company, which serves about 900,000 customers in Oregon, also said in the statement that it’s reducing its full-year 2020 guidance from $2.20 to $2.50 per diluted share to $1.30 to $1.60 per diluted share, citing higher power costs.
(Updates with context and details about PGE’s trading business throughout.)
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