Who Pays for Dominion Hope's Natural Gas Gambles?
Public News Service-WV
http://www.publicnewsservice.org/index.php?/content/article/26594-1
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(05/23/12) CHARLESTON, W.Va. - Gas utility Dominion Hope has lost $22 million hedging on natural gas prices, and this week a judge will decide if the company can pass more than $9 million of that on to its customers. Under the direction of the Public Service Commission, Dominion Hope started hedging six years ago to try to protect against gas price spikes. But the bets lost money consistently, with higher losses recently. The company now wants ratepayers to cover its fiscal 2011 losses.
Byron Harris, who heads the PSC's Consumer Advocate Division, says something might need to be changed.
"The fact that they have consistently lost money is something I think we need to look at, and if there is a better way, I think that's something we definitely need to look at."
Harris says Dominion Hope's hedging was done properly, as designed with the Consumer Advocate Division.
Dominion Hope spokesman Chuck Penn says his company didn't make any mistakes.
"Gas prices have essentially collapsed, down more than 70 percent since 2008. The entire market failed to foresee the drastic decline in prices that would occur."
For every dollar Hope lost and charges to customers, Virginia Power Energy Marketing Group stands to profit. That's another Dominion subsidiary which Hope made these bets with.
Energy market consultant George Donkin was hired by the Affiliated Construction Trades to look into the rate case. He says that kind of deal raises questions.
"Any time you have a transaction involving corporate affiliates, it needs to be recognized that the transaction is now taking place at arm's length."
According to Byron Harris, that does raise red flags, although it doesn't seem illegitimate.
"The fact that they contract with their affiliate really has no impact. The reason that Hope paid above-market prices is because they've been hedging into this declining market."
By comparison, Mountaineer Gas also hedges, but has lost about 25 percent less per unit of gas purchased. The hedging only protects against price increases, but gas prices have fallen dramatically, mostly because of large amounts of gas coming from the Marcellus shale formations under the eastern U.S.
The Administrative Law Judge's decision will be posted on the PSC's website, case no. 11-1103-G-30C.
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