From the Wall Street Journal

Natural-gas prices have plunged 74% in the past 10 years, but some U.S. utilities haven’t reaped the full benefit because of bad bets they made to hedge the cost of the fuel.

Utilities that distribute natural gas or burn it to make electricity often enter into hedging contracts as a form of insurance to protect themselves and their customers against wild variations in the fuel’s price.

The derivatives contracts don’t represent actual fuel deliveries. Rather, if gas prices go up, utilities make profits on the contracts that help offset their higher fuel costs. If gas prices go down, they lose money on the contracts but still benefit by paying less for their fuel.

But in Florida, four utilities including the state’s largest, Florida Power & Light Co., suffered net losses of $6 billion on their program from 2002 to 2015 because their natural-gas hedges wound up being considerably more expensive than eventual market prices, a cost that was passed along to their customers.

Experts don’t know how exactly much money utilities have lost nationwide on natural-gas hedges. But they say the sum is considerable if Florida is an indicator, because its approach was fairly typical. Utilities often hedge as much as half of their natural-gas purchases. Regulators in states including Louisiana, Oregon and Washington are now examining their utilities’ programs.

Continue reading story…

Legal Notice