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Frontlines

Is the predicted crisis this winter a failure of policy, the market, or both?

Fortnightly Magazine - November 2005

this winter. For example, for our NYC LDC, hedging activities accounted for about 60 percent of the reduction, and about 40 percent was due to our portfolio of Canadian and storage gas.

"Our ability to respond to this emergency situation is limited by the lack of adequate infrastructure serving the Northeast."

But some experts say that even as infrastructure may be an issue, there is a lack of standardization and transparency in respect to utility hedging and risk-management programs. Furthermore, utility commissions are not as engaged in hedging programs as they could be.

Tim Simard, principal consultant at risk management firm RiskAdvisory, believes that state PUCs need to enforce a more mechanistic risk-management and hedging program that is maintained year in and year out. Simard says such an approach would contribute to greater price stability across the entire market. The reason sometimes such programs get dropped, he said, is that PUCs lose their conviction for such hedging programs when high prices fail to materialize, and ratepayers must pay for the program.

Moreover, while infrastructure and risk management have been offered as solutions to reduce future price shocks, not many other options are available. If nothing else, the ultimate option, as with anything absurdly overpriced, will be to find an alternative source for home heating or power.

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