Friday, April 5, 2013

To hedge or not to hedge

That is one question.

Another question is, "What is hedging?"

In this case, it has nothing to do with that overgrown evergreen out in the yard.  According to this recent AP story in a Vancouver newspaper, utility hedging is a practice used by natural gas companies that has cost Washington ratepayers $800 million over five years.

"The Washington State Attorney General's Office said it wants the WashingtonState Utilities & Transportation Commission (UTC) to continue investigating the hedging strategies used by utilities," says the newspaper article, "in which the companies purchase gas futures in order to protect against sudden price increases."

In fact, Lisa W. Gafken, an assistant attorney general, is asking that the UTC slap a moratorium on any new hedging. Gafken points out that utilities don't have any genuine motivation to do a better job making their investments as long as they can simply pass the costs on to -- you guessed it -- the ratepayers.

Gafken says that her office "is concerned that customers have been harmed by the companies’ hedging practices. Even recognizing that hedging can be an appropriate natural gas purchasing tool, the dramatic size of these losses highlights the need for more rigorous regulatory review.”

The utilities engage in hedging for reasons plenty sound and logical -- they want to sidestep future fluctuations in the cost of gas. When it works out, then great; everyone's a winner. When it doesn't work out so nicely, well, that's why it's called "hedging" -- not "sure-thinging."

Companies involved in this utility hedging in question are:

  • Puget Sound Energy, Inc. -- approximately 761,000 customers in western Washington.
  • Avista Utilities -- approximately 149,000 customers in eastern Washington.
  • Cascade Natural Gas Company -- approximately 197,000 customers in western and south-central Washington.
  • Northwest Natural Gas -- approximately 68,000 customers in southwest Washington.
The commission is holding a public meeting today that will include a discussion of the matter. The meeting will start at 1:30 that afternoon in the UTC hearing room at 1300 S. Evergreen Park Dr. S.W., Olympia. To participate by telephone, please call the commission at 360-664-1234 prior to the meeting to make conference-line arrangements.