Hedging Protects More than Just Energy

Brian Munzlinger is a member of the Missouri State Senate, representing District 18. He recently introduced a resolution, which is advancing in the Missouri Senate, to educate consumers and fellow lawmakers about the benefits of allowing utilities to hedge fuel inputs. His April 2 op-ed in the Hannibal Courier-Post appears below as a PACE guest blog.

Brian Munzlinger: Hedging Protects More than Just Energy – Opinion – Hannibal Courier – Post – Hannibal, MO.

http://www.hannibal.net/opinion/20180401/brian-munzlinger-hedging-protects-more-than-just-energy  

Just like for any good or service that depends on commodities, power prices are linked to the costs of generation fuels. For years now, utilities have “hedged” natural gas supplies to make it easier to predict the price of this critical generation source over time.

Owing to federal environmental policy shifts, consumer preference for lower emission energy sources, and market dynamics, Missouri’s generation fuel mix is slowly changing. Utilities and consumers will increasingly depend on natural gas for decades to come.

Natural gas commodity prices are relatively low today, but market forces outside of Missouri and the United States, including increased global competition for natural gas supplies, could cause supplies to tighten. Following the logic of basic economies, natural gas could face unpredictable price hikes and extended periods of price volatility.

Utilities attempt to manage outside influences with several strategies, including hedging, which is akin to insurance. A hedge is essentially a reasonable payment that ensures a steady supply at an agreed-upon price for a set time period.

Before natural gas prices rise, or become more volatile, prudent hedging strategies help provide security and stability. Missouri should continue allowing utilities to help consumers and businesses predict and manage their power bills.

Missouri and many other states allow utilities to engage in hedging, and I’ve recently introduced a resolution in the Missouri legislature encouraging allowing this common- sense business practice to continue.