Hedging by utilities cost state's ratepayers $800 million

OLYMPIA, Wash. (AP) - The hedging practices of natural gas companies in Washington state have cost ratepayers hundreds of millions of dollars in recent years, and officials said Thursday they are recommending a moratorium on new hedging arrangements.

The state attorney general's office said it wants the Washington Utilities and Transportation Commission to continue investigating the purchasing strategies used by utilities. Lisa W. Gafken, an assistant attorney general, said companies have no real incentive to improve their investment efforts - something that is evident in the losses during recent years.

"They didn't prudently manage their hedging strategies," she said.

In the last five years, the natural gas companies incurred hedging losses of about $800 million. Those costs are passed directly to ratepayers. Gafken said ratepayers face more losses in the future because the companies already are locked in other hedging contracts at high gas rates.

Utilities use hedging to avoid dramatic changes in gas prices. During the economic downturn of recent years, natural gas prices fell, perhaps contributing to the hedging losses. But Gafken said there were losses in other years, too, including $60 million in net losses between 2002 and 2007 - a period in which prices increased.

The attorney general's office is recommending that officials place a moratorium on companies from entering into new hedging arrangements. It also wants state regulators to explore whether there is a way to prevent some hedging costs from being passed to ratepayers. Officials also want to investigate how best to address market fluctuations.