Count the $4 billion Los Angeles Department of Water and Power (LADWP) among the nervous energy industry players worried about what all of the rules and regulations are going to be affecting gas hedging programs under the Dodd-Frank Wall Street Reform Act (see Daily GPI, Dec. 10).
"It is just killing us by the way; it creates potential regulation over our hedging program, margins and all kinds of things we never planned on," said a high-ranking LADWP manager involved in the city utility's hedging strategy. He was in Washington, DC, earlier in the month to help head a team of public power organizations working on the issues they see potentially adversely affecting them.
The American Public Power Association and the Large Public Power Council have created a working group to get the public power sector's viewpoints represented.
The impact from the Commodity Futures Trading Commission (CFTC) changes could cost LADWP upwards of $200 million annually, the city utility manager told NGI.
"We have such a large portfolio of natural gas, and you superimpose on that the issue of having to cover future years in the way of hedging, you have to put up margins because we can't collateralize any of our physical assets, so there are quite a lot of cash flow issues," the DWP manager said. "We might end up spending a lot more money.
"The cost of doing everything is going to be quite a lot as we try to get a stabilized natural gas supply," the source said, noting that the city utility has not bought any more natural gas reserves since the long-term purchases it made in the last five years (see Daily GPI, May 24, 2005).
The CFTC now has taken action on 36 proposals to implement the financial reform act and still has a long way to go. "There are certainly a lot of things that aren't known yet, a lot of rulemakings that haven't come out," said Joe Raia, CME Group managing director of energy and metals, talking Thursday with reporters in Houston. "We're looking to make sure that we're heading in the right direction given all the changes that could be coming. Certainly there is more unknown than there is known right now."
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