Utility companies discuss hedging their bets

29 October 2004 – There is widespread scepticism about the process used to agree on how to manage volatile gas and fuel prices for utilities, a new survey has revealed.

The survey asked representatives from North American utility companies, regulatory bodies, financial institutions, marketers and consumer groups and was conducted at the RiskAdvisory Regulatory Summit.

Tim Simard, principal consultant, RiskAdvisory said, “Despite the consistent exposure of North American utilities and their customers to severe energy price volatility, it is clear that there is still no standardisation around the design and implementation of utility hedging programmes from region to region.”

Conducted to start a discussion of how responsibility for commodity price management should be assigned to all stakeholders in order to decide on the appropriate guidelines for risk management strategies, the survey concluded that 96 per cent of utilities should employ hedging, with 59 per cent believing it to be very effective.

However, 67 per cent of respondents viewed regulators as categorically unqualified to set policies for utilities’ hedging programmes and 92 per cent agreed that public utilities should seek state or provincial public utility commissions approval for a hedging programme.

Tim Simard said, “In all fairness, these results are skewed toward the perspective of the utility company representatives.” He continued, “Nonetheless, the participants came from across the United States and Canada and demonstrate widespread dissatisfaction with current hedging arrangements.”