In the past the issue of damages always has been contentious matter, usually requiring considerable negotiation and resulting in substantial transaction costs. A major issue in these negotiations has been the measurement of damages. Now, however, the regional indices and futures contracts make price discovery a relatively simple matter and should reduce transaction costs considerably. A supplier's payment may be tied to the ability of the plant to achieve a heat rate allowing it to produce power at a price lower than the regional average. This article has only scratched the surface of the types of opportunities that suppliers and utilities have during this transitional period.
Success requires quick action.
The window of opportunity is likely to be open for a relatively short period. Don't study an opportunity to death. Create a dynamic business plan that can be changed as the situation warrants. Above all, the present situation makes it imperative that fuel suppliers know more about the utility business than they have in the past. Those who understand the drivers of change, stay abreast of developments, and take steps to benefit from them should be able to capitalize on these changing conditions.