OK To Use Pilot Hedging Programs for Largest Utilities

The Oklahoma Corporation Commission (OCC) has begun two unique pilot hedging programs for the state's largest gas and electric utilities as part of an overall plan to lessen the impact of energy price volatility on consumers. The OCC order, announced last week, for the first time involves all the major utilities, and is part of a concerted effort to find solutions to the impact of high market prices that have hit the state and the rest of the nation for more than a year.

OCC will use two different pilot programs to search for the best type of market hedging methods and risk management programs that it said would "represent a diversified, balanced portfolio" focused on reducing high price exposure for consumers.

One pilot, undertaken by the Oklahoma Natural Gas Co. (ONG), will last for 12 months beginning in the fall of 2002, will offer consumers a voluntary, fixed price payment plan designed to avoid spot market pricing. The pilot also will help determine customer acceptance, and ONG will be allowed to collect reasonable costs to implement the program. Another pilot, to be undertaken by Arkla-Reliant Energy Resources Inc., also uses hedging for financial transactions not to exceed 10% of its annual gas supply for 12 months ending March 31, 2002.

OCC also plans to work with ONG, the largest utility, and other utilities also under a notice of inquiry to consider future hedging plans that could be implemented to reduce the impact of price volatility on customers.

The state's largest electric companies, including Public Service Company of Oklahoma and Oklahoma Gas & Electric, will also select hedging programs, to be reviewed by OCC, to see how they can reduce market price volatility.

Commissioner Bob Anthony said that the OCC also will now require the state's largest natural gas utilities and largest electric power utilities to disclose their future fuel purchasing strategies and present ways to lessen the impact of energy price volatility for consumers.

"An unfortunate aspect of Oklahoma's law...is the automatic pass-through to customers of the risk of fuel price volatility as well as the actual cost of fuel," Anthony said. He said the OCC has learned "lessons" from the California energy crisis, "as well as from the price spikes in a variety of energy commodities," and said it was "ever more important for this agency to remain proactive as we face the challenges inherent in moving to alternative regulation, unbundling and restructuring of Oklahoma's utility markets."

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