Spot power prices are volatile and, since electricity cannot be economically stored, familiar arbitragebased methods are not applicable for pricing power derivative contracts. This paper presents an equilibrium model implying that the forward power price is a downward biased predictor of the future spot price if expected power demand is low and demand risk is moderate. However, the equilibrium forward premium increases when either expected demand or demand variance is high, due to positive skewness induced in the spot power price distribution. Optimal forward positions for power producing and retailing firms depend on forecast power demand and on the skewness of power prices. Preliminary empirical evidence indicates that the premium in forward power prices is positively related to expected demand, and is large during the summer months.