A new report from the Partnership for Affordable Clean Energy (PACE) explains that the practice of natural gas hedging is a critical instrument for protecting electricity customers over the long term. Natural gas has now surpassed coal as the most used fossil fuel for power generation, meaning that hedging against potential increases in the price of natural gas has become more important.
Nationwide, electric utilities have continued to use natural gas hedging instruments as a way of stabilizing power prices over the long term and avoiding so-called ‘sticker shock’ for customers.
“Historically, hedging has allowed utilities to navigate the volatility of changing factors such as weather without creating constant sticker shock for their customers,” the report states. “Whether a mild winter and low electricity use combine to create a glut of natural gas, or whether a harsh winter drives up prices, utilities that combine hedging with smart forecasting are better able to stabilize their power prices.”
In states like Florida, which is already number two in the nation in terms of natural gas use for electricity generation and poised to use even more natural gas in the coming years, hedging is an indispensable tool for utilities and regulators as they seek to shield customers from potential natural gas price spikes. Lawmakers in Florida are now considering Senate Bill 1238, legislation that would allow utilities to make investments in natural gas reserves as a form of hedging.
“Electricity customers everywhere, but especially those customers in Florida, remain vulnerable to swings in natural gas prices,” explains PACE Executive Director Lance Brown. “We hope that this report helps policymakers recognize the value of natural gas hedging and that they remain committed to long-term price stability for customers.”