Optimizing Short-Term Natural Gas Supply Portfolio for Electric Utility Companies

Abstract

Natural gas fired power plants (NGFPP) are important electricity generation resources in the United States. Optimizing the natural gas supply portfolio, especially the short-term portfolio, is critical for the day-to-day operations and the financial performance of NGFPPs. Traditionally, such optimization problems are solved using cost-minimization-based frameworks. However, such frameworks are facing challenges due to the lack of consideration of associated financial risks in the current deregulated electricity markets, which the electric utility companies (EUCs) who own and operate NGFPPs now bear. This paper presents a utility-maximization-based framework to optimize the short-term natural gas supply portfolio for the EUC. It considers the financial risks associated with the portfolio and incorporates the risk preferences of the EUCs as decision-maker (DM) in the portfolio optimization process. An application of the proposed framework is provided, and its results show that the proposed framework is more desirable in terms of risk-cost trade-off optimization