Gelber Presents "Best Utility Hedging Practices" at the Colorado PUC
Gelber & Associates’ President, Art Gelber, gave an insightful presentation to the Colorado Public Utility Commission in Denver on August 24, 2017.
Gelber & Associates is pleased to have been recognized by the State of Colorado as the best in class for Utility Hedging. Gelber’s client, Atmos Energy, has the best hedging performance of any utility operating in Colorado. The Commission wanted to understand better what practices Gelber & Atmos were using to create such noteworthy results.
Atmos operates natural gas distribution utilities across the state in areas including Steamboat Springs, Greeley, Lamar, and Durango.
During the 40 minute presentation, Art Gelber spoke on best practices, experiences, successes, and areas of potential improvement. The audience inside the meeting room included representatives for all of Colorado’s investor owned utilities, the Colorado PUC Commissioners (including Chairman Ackerman), PUC staff, Public Advocates, marketers, private storage operators, and production companies. Industry professionals watched the event over webcast including organizations in Mexico and Canada, as well as European and Asian utilities buying U.S.A. sourced LNG. Also participating via webcast were utilities and Public Utility Commissions in Florida, Washington State, Oregon, California, and Missouri, among others.
State Public Utility Commissions should not encourage utilities to abandon their hedging programs. It would be highly speculative and not prudent for states to suspend their utility hedging activity. Prices are low and upward pricing pressures are building in the market. The goal is to provide reasonable, cost appropriate protection. Now is the opportunity to get in sync with the market. The goal for ratepayer protection is to buy low priced natural gas. This was impossible between 2002 and 2005 when natural gas prices were screaming higher. That was a different period since natural gas prices were at $5.00 on their way to $15.00, giving hedging activities the opportunity to provide protection as prices doubled and tripled. Hedging programs should have made a lot of money on the way up! Even as ratepayers were unable to pay their extremely high utility costs; hedging gave the ratepayer a little relief and protection. The rule is “buy low and…" Now prices are low, and this unique opportunity should not be squandered by dismantling best practices.
Ratepayers are enjoying some of the cheapest gas of all time thanks to technological innovations in horizontal drilling and hydraulic fracturing. Producers, on the other hand, are marginally profitable and struggling to drive down cost and staff. Today, utilities can use a revamped hedging strategy to lock in these low prices for years to come. This is a worthwhile goal. Utility companies will reward their ratepayers if they can figure out how to be smart in the market to position themselves for the upward pricing environment which is coming.
Gelber & Associates is currently in the process of further developing services for utility consulting. We are devoting more resources to further improve the methods that were already recognized in Colorado. Don’t hesitate to contact us if we can assist you in building your own custom hedging program.
To view Art's entire presentation, please visit our Media page.