Power players

Bert Caldwell

SOMETIME AROUND 3 a.m., the computers in Mike Griswold’s home off Bigelow Gulch start inhaling everything that might possibly affect electricity prices from Mexico to Canada.

By 4:30 a.m., Griswold has shuffled to his poolside desk to make sure all is well. He reviews the preliminary results of 40million computations that will forecast prices for that day and weeks and months ahead.

Forty reports on projected activity in six wholesale power markets – with spreadsheets, graphs and analysis – will be in the hands of Powerlytics LLC clients by 5:30 a.m., 8:30 a.m. Eastern time, when trading in electricity opens in New York, he said.

They will know the weather forecast for Phoenix, the flow of the Columbia River at Bonneville Dam, natural gas prices at a key hub in Louisiana and what California power plants or Oregon transmission lines will be off line.

Griswold said most of Powerlytics’ 15 clients use the information to minimize risk, or roll existing positions into new contracts for future sale or delivery of power.

If prices on electricity for delivery in the future are close to those nearterm delivery, for example, Griswold said “That’s a great buy.”

He said the market is discounting the potential for events that just cannot be anticipated; major outages maybe, or a decision by the Federal Energy Regulatory Commission to impose price caps, a move that pulled the rug out from under electricity markets in May 2001.

Powerlytics was founded in January by Griswold and partner Jason Gu, who is based on Mercer Island. The two had traded energy for Hafslund Energy Trading LLC, a subsidiary of Norway’s largest utility.

But Hafslund was purchased last year by the municipal utility serving Oslo, Norway’s capital. Griswold said the new owners had no use for a small trading office in Seattle.

They sold the unit’s price forecasting models to Hafslund executives and European investors. Griswold and Gu, in turn, obtained the rights to use those models, which they had helped develop while at Hafslund.

They pay a monthly royalty to the Norwegians, as well as a Chinese group that compiled the database that is Powerlytics’ foundation.

Griswold expects revenues this year of slightly less than $1 million.

Griswold said he acquired most of his training expertise at Avista Corp., where he worked from 1989 until 1998.

An Eastern Washington University graduate and certified public accountant, Griswold had been an unhappy civil servant in the Spokane County assessor’s office.

“I’m a little more of a risk taker than a county employee,” he said.

Griswold joined the utility as a financial analyst assessing the virtues of leasing versus purchasing, or whether extending a power line made sense.

He was brought into Avista’s energy trading operation to apply the same kind of analysis to the company’s day-to-day positions in wholesale markets.

This was new turf.

“I didn’t even know what a megawatt was,” Griswold said.

But with his accounting and computer skills, coupled with crash courses in the fundamentals of electricity, Griswold was soon handed responsibility for determining what the relationships were between the prices Avista might pay for electricity and the financial risks involved.

When Avista spun off the bulk of its trading operations as Avista Energy in early 1997, Griswold joined the team. Despite a preference by company officials that he stick to his modeling, Griswold said he insisted he be made a trader.

By 1998, he said, he was doing the bulk of the subsidiary’s trading volume. But he jumped to Hafslund because of a dispute over his bonus that was later resolved by litigation.

Griswold was also charged with participating in the manipulation of energy prices that year. Without admitting wrongdoing, that claim was resolved with the payment of a $110,000 fine.

Griswold said traders who become analysts are rare because the money has been in trading. But the scarcity of independent analysts has created an opening for Powerlytics. Even an operation like the Bonneville Power Administration does little if any modeling of markets outside the Northwest, he said.

Yet shock waves from developments in California can rock Northwest ratepayers, as the explosion of prices in 2000 and 2001 illustrate all too well.

Griswold said Powerlytics is trying to make its reports affordable to customers of every size. Buyers now are evenly split between energy traders and utilities, he said.

Griswold said the company is working on a product for financial institutions that may want to know what risk their utility customers are exposed to in energy markets, as well as the risks borne by trading partners who, if they fail, could owe millions of dollars.

Powerlytics is also developing a product for European markets, he said, and there has been some interest from Australia. Griswold said he and Gu own a piece of those potential markets.

He said East Coast and Midwest markets in the U.S. are also possibilities, but finding the time and the people who understand those markets will be a challenge.

“You need an expert in the zone to do it,” Griswold said.

Although energy trading activity has subsided in the last year, he said, the opportunities for Powerlytics are everywhere.

“We’ve found a nice niche,” Griswold said.

This sidebar appeared with the story:

Profile

Name: Powerlytics LLC

Address: 13504 E. Francis

Managing partner: Mike Griswold

Annual revenues: Slightly less than $1 million (projected)

Phone: 928-2026

Copyright 2002 Cowles Publishing Company

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