''Spark Spread'' Coverage

Many efficient gas-fired units operate in intermediate operating mode during the peak electric season. That is, they generate fully during on-peak periods, and at partial or no load during the night and weekend periods. In order to hedge their fuel supply risk, some purchase natural gas under long-term, must take agreements.

In the event of a forced outage, not only are there potential financial implications resulting from the cost for replacement power, but there are also potential losses from the resale of the natural gas purchased under long-term agreements.

ACE has covered gas-fired units from the net losses resulting from the procurement of replacement power to compensate for generation shortfalls and from the resale of natural gas. A ‘Spark Spread’ between the natural gas and electricity markets is specified, based on the efficiency of the unit. For example, for one customer, a $20/MWH spread between the cost to replace the electricity and the net revenue received from re-selling the gas was used. When the net loss between the two markets exceeded $20/MWH, ACE is responsible for 90 percent of the incremental income loss. A pre-specified conversion rate based on the efficiency of the unit was used to determine the relative volumes.

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