With one commissioner dissenting and another recusing himself, the California Public Utilities Commission (CPUC) Thursday voted 3-1 to authorize the confidential natural gas wholesale hedging plans of the state’s three major private-sector gas utilities for the coming winter season. The approval places all the costs and benefits of the programs on the utilities’ ratepayers who are the beneficiaries of the hedging, the CPUC said, although Commissioner Geoffrey Brown disagreed.
The regulators’ action removes the utilities’ costs of the financial hedging from each utility’s respective natural gas purchase incentive mechanisms. “This is important because it will allow the utilities to take on expanded hedging programs while aligning ratepayer and shareholder interests,” said CPUC President Michael Peevey, who authored the decision that rejected an administrative law judge recommendation to deny the utilities’ hedging plans.
Peevey said customers bills were expected to rise an average $2/month as a result of the hedging, which he called “a small price to pay” as insurance to protect against even higher bills. This year, the utilities collectively and individually plan to hedge more, Peevey said, and the monthly bill impacts will not increase from last winter’s program. The financial details remain confidential, but they will be shared regularly with CPUC energy staff and consumer units, and full reports on the results of the hedging will be due in April next year from each utility, Peevey said.
Longer term, Peevey encouraged the utilities to follow what he called this year’s lead of Pacific Gas and Electric Co. and file long-term hedging plans that go beyond year-to-year reports.
While dissenting, Commissioner Brown called hedging a “useful tool to mitigate price spikes,” but in this case he accused the three utilities of “trying to buy an insurance policy without spending or risking any of their own money, and without any review process.
“Utilities already have authority to hedge prices for bundled core customers,” Brown said. “[This decision] effectively places all the hedging costs and risks on the ratepayers, unlike the shared-risk structure under the incentive [gas-buying] mechanism.”
Peevey reminded Brown that what was authorized for this winter is similar to what he voted for before last winter in the wake of Hurricane Katrina’s impact on the wholesale gas market. Brown agreed, but added the caveat that the utilities “lost their shirts” from that programs.
©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |