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Hedging Under Scrutiny

Planning ahead in a low-cost gas market.

Fortnightly Magazine - February 2012

2. Bruce McDowell, AGA Rate Inquiry: Regulatory Hedging Policies , American Gas Association, (Fall 2009).

3. In a recent commission order (Docket No. UE 228), the Public Utility Commission of Oregon penalized Portland General Electric (PGE) for failure in 2007 to document the reasons for executing 2012 gas hedges. In its decision, the Commission noted its 2002 order (in Docket No. UE 139) in which the commission disallowed costs associated with certain of PGE’s forward power purchases citing the company’s failure to provide evidence regarding price trends or internal company market analyses that might have supported the reasonableness of the company’s decisions. In its decision in UE 228, the commission reduced the utility’s 2012 net variable power costs forecast by $2.6 million “to ensure management’s future compliance” with commission orders. The penalty was calculated as the monetary equivalent of a one-year, 10-basis-point reduction in PGE’s authorized return on equity. Public Utility Commission of Oregon, Docket No. UE 228, 2012 Annual Power Cost Update Tariff , (Nov. 2, 2011).

4. Public Utilities Commission of Nevada, Docket No. 10-09003, Application of NV Power Co d/b/a NV Energy for Approval of its Energy Supply Plan Update for 2011-2012 , Order (Dec. 16, 2010) and Stipulation (Nov. 9, 2010). Note, in September 2011, Nevada Power submitted a proposal to engage in new hedging, using out-of-the-money call options in its filing to the Public Utilities Commission of Nevada, Application of Nevada Power Company d/b/a NV Energy for Approval of its Energy Supply Plan Update for 2012 , Docket No. 11-09003, (Sept. 1, 2011). However, in its draft order in the same docket, dated Dec. 14, 2011, the commission rejected NV Energy’s hedging proposal and ordered NV Energy to continue the existing commission-approved hedging strategy described in the stipulation that the commission approved in Docket No. 10-09003 on Nov. 9, 2010, without exception.

5. British Columbia Utilities Commission, Order Number 6-120-11, Application by Terasen Gas Inc. and Terasen Gas (Vancouver Island) Inc. (collectively Terasen Gas) (now FortisBC Energy Inc. and FortisBC Energy (Vancouver) Inc.) for Approval of the Price Risk Management Plan Effective April 2011-October 2014 , (July 12, 2011).

6. Public Utilities Commission of the State of Colorado, Docket No. 08A-095G, In the Matter of the Application of Public Service Company of Colorado for Authorization to Continue in Effect, On a Permanent Basis, Its Monthly Gas Cost Adjustment Tariffs, With Modifications to provide For Symmetrical Interest on Deferred Balanced of Over- And Under-Recovered Gas Costs, and to Extend For an Additional Four-Year Period the Current Procedures for Seeking and Obtaining Authorization to Implement Annual Gas Price Volatility Mitigation Plans for Its Gas Sales Customers , (March 2, 2009).

7. Public Service Commission of Utah, Docket No. 10-035-124, Direct Testimony of J. Robert Malko, Utah Industrial Energy Consumers, In the Matter of the Application of Rocky Mountain Power for Authority to Increase its Retail Electric Utility Service Rates in Utah and for Approval of its Proposed Electric Service Schedules and Electric Service Regulations , (May 26, 2011).

8. Public Service Commission of Utah, Rocky Mountain Power Settlement Stipulation,