With natural gas futures prices “considerably less than the average price for the last three winter heating seasons,” the Maryland Public Service Commission (PSC) this week initiated a proceeding to review the hedging plans of the state’s gas and electric utilities, the PSC said.

“Since hedging against the risk of increased natural gas prices during the upcoming 2009-2010 winter heating season is possible, it is appropriate for the commission to investigate whether utilities should use hedges to protect their ratepayers against potential increases in natural gas prices,” the PSC said.

The PSC ordered the state’s utilities to file hedging plans by Tuesday (May 19) and scheduled a hearing at PSC headquarters in Baltimore on May 27.

The PSC has taken a decidedly hands-on approach to Maryland utilities’ gas purchases in recent months. In March the PSC ordered each of the utilities to purchase 40% of its summer gas injection needs immediately for delivery through October (see Daily GPI, March 23). In a series of orders the PSC directed Baltimore Gas & Electric Co., Washington Gas Light Co., Columbia Gas of Maryland, Chesapeake Utilities Corp. and Easton Utilities Commission to take actions — other than options — to assure that 40% of their summer natural gas injection volumes for delivery between April and October “will reflect pricing that reflects a Henry Hub price of $4.32 or less per MMBtu plus basis cost.”

Front-month natural gas futures prices have fallen precipitously since last summer. After futures peaked at $13.694/MMBtu on July 2, 2008, prompt-month natural gas values have plummeted approximately 68% to $4.333 on Wednesday. On Thursday, June natural gas futures were boosted by a slightly smaller than expected storage build report for the week ended May 8 (see related story).

Significant natural gas price increases are probably still some time away, according to many analysts. A Bentek Energy executive recently said natural prices of $4-6/Mcf are likely to be in place for 12-18 months — and possibly as long as five years (see Daily GPI, April 8). Raymond James & Associates Inc. has said booming production from shale plays and the recession could deliver a “price meltdown” this summer, with sub-$3/Mcf natural gas almost a certainty (see Daily GPI, March 17). And the Energy Information Administration (EIA) has predicted that natural gas prices, production and consumption in the United States will continue on a downward trend, with the Henry Hub spot price projected to fall nearly 50% to an average of $4.70/Mcf this year from an average of $9.13/Mcf in 2008 before rising to an average of $5.90 in 2010 (see Daily GPI, March 11). The Henry Hub spot price averaged $3.62/Mcf in April, 46 cents/Mcf below the average spot price in March (see Daily GPI, May 13).

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