The trouble with normalisation
Weather derivatives practitioners say normalisation agreements between regulators and utilities in the US are posing a threat to their industry. Kevin Foster investigates
Utility regulators in the US are getting tough, and weather normalisation – agreements between a utility and its regulator to raise or lower rates to mitigate the impact of weather – are on the increase as a result. Users of derivatives argue that the practice is not only another obstacle to the stuttering growth of the weather risk market, but that it could also hurt energy customers.
Tom Matthews, director of risk management at energy company Kinder Morgan in Lakewood, Colorado, says:
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