Wisconsin Public Service approved for hedging program update

The Public Service Commission of Wisconsin on July 19 issued a final decision that allows Wisconsin Public Service to update its hedging program, including an increase from 50% to 75% on what it can hedge on coal transportation surcharges.

The utility had on April 15 asked the commission for an updated Energy Market Risk Policy and Plan (EMRP) and to extend the expiration date for its EMRP. The commission approved the first ERMP in 2005. Since that initial approval, the commission has approved revisions to the EMRP, imposed additional conditions, and extended the approvals of the EMRP. The most recent commission approval of the EMRP occurred in October 2010, extending the approval through Dec. 31, 2013. The revised EMRP now extends through 2016.

Wisconsin Public Service (WPSC) proposed to use new electric-for-electric hedges as well as the gas-for-electric hedges it has used in the past. WPS also requested approval, which was granted, to increase the cross-commodity hedging cap from 50% to 
75% for rail surcharges related to the transportation of coal.

Railroads impose surcharges to recover their highly volatile costs of diesel fuel to run their locomotives on a fairly real-time basis. So what a utility pays for coal transportation, over and above the base transportation rate, can be volatile.

In its 2010 reauthorization of the EMRP, the commission said the utility may increase the 50% limit on the rail surcharge hedging to 75% of expected exposure after some experience had been gained. “WPSC now has some experience with this type of hedge, and a higher hedging limit may be appropriate,” the order said. “The Commission determines that WPSC may not cross-commodity hedge more than a cumulative 75 percent of a future month’s predicted exposure to railroad fuel surcharges and determines that this provision is waived for the month immediately preceding any future month.”

Currently, WPSC hedges its electric load by purchasing natural gas hedges. WPSC has proposed to use electric-for-electric hedges in addition to the gas-for-electric hedges. The electric hedges will be used to hedge up to 75% of the expected exposure to electric market prices. The expected exposure does not include WPSC’s owned generation or physical purchased power agreements which provide an adequate hedge to market price volatility.

Gas-for-electric hedges will be used to hedge WPSC’s natural gas price volatility for fuel for the gas-fired Fox Energy Center power plant. Up to 75% of this exposure would be hedged. Because the Fox Energy Center is excluded from the expected exposure for the electric-for-electric hedges, the combined percentage hedged would not exceed 75%. With the Dominion Kewaunee Power Station purchased power agreement ending in 2013, WPSC will be more exposed to market volatility, the commission noted. The electric-for-electric hedges will allow for a hedge that is not tied to its natural gas-fired generation. Kewaunee is a nuclear plant that was shut in May by Dominion Resources (NYSE: D).

The commission determines that WPSC may use electric-for-electric hedges as well as gas-for-electric hedges; and that the total of the electric-for-electric and gas-for-electric hedges may not exceed a cumulative 75% of a future month’s predicted exposure to energy price volatility and determines that this provision is waived for the month immediately preceding any future month.

Integrys Energy Group (NYSE: TEG) said March 28 that subsidiary Wisconsin Public Service had closed on a purchase of Fox Energy Co. LLC from subsidiaries of General Electric and Tyr EnergyThe purchase included approximately $390m for the Fox Energy Center, a 593-MW combined cycle generating facility in Kaukauna, Wisc., and $50m for the early termination of the existing tolling agreement between the entities. Fox Energy Center is a dual-fuel facility, equipped to use fuel oil but expected to run primarily on natural gas.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.