Kentucky PSC sees enough gas price stability to end price hedging programs

The Kentucky Public Service Commission is confident enough that the bad old days of extreme natural gas price volatility are over, at least for now, that it on March 27 refused to extend a gas price hedging program for Duke Energy Kentucky that it had first approved in 2001.

On Jan. 28, Duke Energy Kentucky filed its request for approval to continue its existing gas cost hedging plan for three years, through March 31, 2018. Duke has had a commission-approved hedging program in place since July 2001. The most recent version of its hedging program was approved through March 31 of this year.

“Based on the evidence of record and being otherwise sufficiently advised, the Commission finds that Duke’s hedging program should not be extended,” said the March 27 order. “The Commission’s concern with regard to the extension of gas cost hedging programs, as discussed extensively in Case Nos. 2013-00354 and 2013-00421, was that continued low and stable gas prices could obviate the need for hedging. This was the conclusion that we reached in those cases and is the conclusion we now reach in this case.

“While there is no guarantee that higher levels of gas prices and volatility will not recur, current projections from the United States Energy Information Administration’s 2014 Annual Energy Outlook indicate prices are not expected to exceed $8.00 per Mcf through 2040 using the reference case and are not expected to exceed $8.15 per Mcf using the High Growth scenario. More importantly with regard to volatility, the trend in price increases is projected to be gradual and steady in the long run.

“The Commission finds that current conditions and the outlook for future natural gas supplies and prices are sufficiently different in 2015 from what they were in 2001 to allay our previous concern regarding the potential adverse impact of price volatility on customer bills. We therefore conclude that it is no longer reasonable to impose the cost attendant to hedging, to the extent there is net cost rather than net savings, to be passed along to Duke’s customers as part of their gas cost.”

Those 2014 refusals to extend hedging programs came in cases involving Columbia Gas of Kentucky and Atmos Energy. Since then, based on those decisions, Delta Natural Gas has told the commission it will discontinue its hedging program.

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.