Show-Me State Legislators Show Value of Hedging

Later this week, PACE will offer testimony to the Missouri House of Representatives Utilities Committee highlighting why natural gas hedging helps assure consumer electricity prices are stable and predictable.

In February, PACE testified to a key committee of the Missouri Senate. Our goal was and is supporting a pair of resolutions (Senate Concurrent Resolution 43 and House Concurrent Resolution 87) introduced earlier in the session by Sen. Brian Munzlinger and Rep. Rusty Black.

Each resolution urges the Missouri Public Service Commission to continue allowing the state’s electric utilities to prudently hedge natural gas contracts, through financial means or by taking an ownership stake in fuel reserves.

The Senate version of the resolution passed the chamber’s Rules, Joint Rules, Resolutions & Ethics Committee unanimously on March 6^th.

While regulators and legislators should feel empowered to ask questions about natural gas prices and how utilities use hedging to mitigate price risk, PACE wants to clarify for these and other stakeholders that low prices now do not justify abandoning hedging programs.

Many lawmakers, especially in states with term limits, may not have been in office during the early- to mid- 2000s when natural gas commodity prices rose sharply and proved to be extremely volatile.

While sustained low commodity prices for natural gas are a blessing, utilities and consumers should be allowed to prepare for the day when market forces (what comes down must eventually go up) take effect.

Prices could rise and become more volatile due to increased environmental regulations across the energy sector, or as U.S. natural gas exports rise. As more sectors (transportation, manufacturing) electrify, domestic natural gas usage may rise.

In speaking with lawmakers, PACE also has provided some basic definitions of hedging, recognizing it’s a familiar practice to those engaged in agriculture, but can seem mysterious at first blush. Hedging is essentially a contract that locks in a certain amount of a needed resource at a later date for a set price. The cost of hedging comes with the payment for that extra assurance. The goal isn’t the absolute lowest price over time, but rather the intersection of a predictable and low price for as many time periods as possible.

PACE efforts in Missouri continue our advocacy on hedging issues, first captured in our March 2017 briefing paper. You can learn more at energyfairness.org.