SEATTLE (Legal Newsline) - Washington Attorney General Bob Ferguson announced Thursday his office would recommend that the Washington Utilities and Transportation Commission continue looking into the hedging strategies used by utility companies to purchase natural gas.
Ferguson's Public Counsel Division also recommended the WUTC order certain hedging costs not to be passed onto customers. Natural gas market prices fluctuate daily and utilities use hedging to lock in prices for future purchases to avoid some of the fluctuation. If prices are higher than the market price when the gas is delivered, the difference is considered a loss.
The four companies that provide natural gas in Washington, Northwest Natural Gas, Cascade Natural Gas, Avista Utilities and Puget Sound Energy, reported net losses of at least $860 million between November 2002 and October 2012.
Approximately $800 million of the net losses occurred in the last five years. Natural gas costs, including hedging costs, are passed directly to ratepayers, forcing them to pay the full burden of the losses.
Assistant Attorney General Lisa Gafken said the division is concerned that customers were harmed by the hedging practices of the four companies. Current hedging contracts may also expose consumers to substantial losses in the future. Gafken said Ferguson's office questions whether nearly $1 billion is a reasonable price for Washington ratepayers to pay for the stability of prices.
In October, the WUTC ordered an initial inquiry into the natural gas purchasing and hedging practices by the four companies that provide natural gas service in Washington. The commission will decide during a meeting on Friday whether or not to continue looking into the companies.
Ferguson's office recommends that the WUTC continue the inquiry to determine if there is a basis to order that some of the hedging costs not be passed to consumers. The office recommends the WUTC place a moratorium on companies from entering into new hedging arrangements until analysis can occur and company practices can be improved to minimize costs.
The division said multiple issues merit a further look, such as what percentage of gas supply should be hedged, how long in advance companies should hedge and how to effectively address market fluctuations.