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Maine Approves Electricity Price Hedging

Fortnightly Magazine - December 1995

The Maine Public Utilities Commission (PUC) has authorized Bangor Hydro-Electric Co. to enter into oil price-swap and price-cap transactions. The utility said that the since the PUC had eliminated its fuel adjustment clause in an earlier proceeding, it had sought ways to reduce the risk associated with fuel price changes. The oil "price hedges," seek to set Bangor's future cost of oil by requiring the parties to pay a settlement amount if the actual price, as published by a well-recognized source, should vary from the price contained in the agreement. The PUC approved the proposal subject to the following conditions: 1) the amount of oil hedged in any one year may not exceed 1.6 million barrels; 2) Bangor must obtain at least three quotes from competing firms before entering into any particular hedge agreement; 3) Bangor must report its activity to the PUC within 30 days of executing an agreement, and must report the net impact of hedging activities within 30 days of the close of each quarter. The PUC said it would defer a prudence review of the transactions at least until Bangor's next rate case, but that approval to enter such agreements will expire on December 31, 1998. Re Bangor Hydro-Electric Co., Docket No. 95-242, Sept. 26, 1995 (Me.P.S.C.).

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