Hedging costs Washington natural gas ratepayers $850 million
Mar 21, 2013, 1:07 PM | Updated: 4:36 pm
State regulators are investigating a cost-saving, purchasing strategy that has backfired on four natural gas utilities in Washington, costing ratepayers hundreds of millions of dollars.
It’s called hedging. When prices fluctuate, utilities will lock-in prices to protect against future natural gas price increases. But if prices drop, the savings are lost. Four utilities in Washington have been passing along those losses to ratepayers.
The State Attorney General claims hedging has cost ratepayers $800 million in the last five years and about $860 million since 2002.
“Our concern is that hedging policies that the utility companies have been using haven’t been prudently managed and the ultimate costs, the end costs to the consumer have been tremendously large,” said Lisa Gafken, Assistant State Attorney General in the Public Counsel Divison.
Puget Sound Energy Vice President David Mills says there’s no way the utilities could have anticipated the plunge in natural gas prices, which he calls a function of the recession and a glut of natural gas in the market, combined with a warm winter of 2012.
Mills calls hedging a necessary insurance policy against wholesale price spikes, which he insists will happen again.
The four companies involved are Puget Sound Energy, Avista Utilities, Cascade Natural Gas, and Northwest Natural Gas.
The state Utilities and Transportation Commission meets Friday in Olympia.
“We would like the Utilities and Transportation Commission to order the companies to stop hedging for the time being until a short term fix can be put in place,” said Gafken. Mills says that would be a mistake. He argued the utility’s hedge buying is disciplined, what he calls “programatic” in that there’s very little discretion, no speculation.”
Gafken insists the Attorney General’s office is not condemning the practice of hedging as long as it passes a well-established “prudence” review. One possible remedy is for state regulators to force the utilities to absorb some of the losses from hedging.
The Utilities and Transportation Commission began an investigation into the utilities’ hedging practice last October and the Attorney General’s office will ask the UTC that the investigation continue.
