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Hedging a Commodity Power Rate

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  • THOMAS D. KAUFFMAN
  • STEPHEN B. DOPPLER

Abstract

Many of the aluminium smelters in the Pacific Northwest served by the Bonneville Power Administration (BPA) have become non‐competitive and operate in the role of swing producer in the US and world markets. To avoid these cyclical swings in power demand, BPA is presently studying methods designed to link the price of power charged to smelters with the market price of aluminium. A linked‐rate system tends to stabilize incomes to smelters, but increases fluctuations to the utility. These, in turn, could be stabilized by a hedging operation on the London Metals Exchange.

Suggested Citation

  • Thomas D. Kauffman & Stephen B. Doppler, 1986. "Hedging a Commodity Power Rate," Natural Resources Forum, Blackwell Publishing, vol. 10(2), pages 173-179, May.
    • Handle: RePEc:wly:natres:v:10:y:1986:i:2:p:173-179
    DOI: 10.1111/j.1477-8947.1986.tb00792.x
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    References listed on IDEAS

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    1. Leland L. Johnson, 1960. "The Theory of Hedging and Speculation in Commodity Futures," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 27(3), pages 139-151.
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