Portfolio Protection for LSE

Most native load serving entities (“LSE”) self-insure for some unplanned outages by maintaining a portfolio of generating supply. Units are not 100 percent reliable, and most companies will self-insure through maintaining a healthy 10 to 15 percent surplus of generating supply.

Yet often, there are single contingencies: for example, a single large unit that provides more than 10 to 15 percent of their supply and there is exposure to market prices when more than one unit is forced offline. Also, there is some chance that more than 10 to 15 percent of resources can be forced offline concurrently.

ACE Power Products provides coverage for these systems by pooling all generating resources into one PowerBacker coverage. This protection includes those units controlled and operated by the insured and those units relied on to meet supply obligations but operated by other parties. This portfolio approach provides replacement power coverage when the total of all outages at a particular time exceeds a pre-determined level (“Trigger 1” of forced outages) and power prices exceed a certain level (“Trigger 2” of high market prices).

For example, a 2,000 megawatt (MW) system may have capacity reserves of 300 MW and will need protection when outages exceed this level. Likewise, the customer can absorb some incremental cost for power purchases, but will experience extreme financial harm if power purchases are above $100/megawatt-hour (MWh). ACE Power Products would structure coverage so that replacement power coverage is provided when outages exceed 300 MW (“Capacity Deductible” in the Policy and “Trigger 1”) and power prices are above $100/MWh (“Trigger 2”).

Example of this coverage follows:

Insured Event:	Unplanned Outage at any Named Facility
Insured Units:	3 – 500 MW Coal Steam Units 5 – 100 MW Gas Turbines
Capacity Deductible:	300 MW
Insured Price:	$100/MWh

Claim Settlement

Insured Event:	Outage at one of the Coal Steam Units for 2 on-peak days
Market Prices at time of Event:	$250/MWh
Claim:	500 MW less 300 MW capacity deductible       Multiplied by $200/MWh less $100/MWh Insured Price       Multiplied by 16 on-peak hours per day       Multiplied by 2 days $960,000

To learn more about these customized solutions call us directly at 1 800 356 2827 or call your insurance broker.