Risk, Hedging and Prudence

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The roller coaster behavior of natural gas prices over the last few years has caused great anxiety for consumers, utilities, and their regulators. State commission have authority to determine whether utilities can recover 100% of their fuel costs. In the context of these reviews, hedging activities have presented a major challenge. State commissions have had to address difficult questions such as: (1) whether retail customers want price stability, (2) the kind and degree of hedging that should be executed in order to provide the price stability that consumers want, and (3) how much consumers are willing to pay for the price stability that hedging instruments can provide. This article suggests a critical need for regulators to establish clear guidelines for utility hedging. It also provides guidance to utilities.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Julia Sullivan | Attorney Advertising

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