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Pennsylvania Utility Seeks To Use Financial Hedging Products For Default Service, Increase Price Stability

June 18, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott (at) energychoicematters.com

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Pike County Light & Power Company, Electric Division has petitioned the Pennsylvania PUC to begin using a financial hedging strategy for a portion of its electricity default service requirements, beginning May 31, 2019.

"While in the past PCL&P has, with Commission approval, obtained all of its supply from the spot market without any financial hedging or longer-term contracts, after completing an alternative supply study (the Study) Pike proposes to implement a financial hedging strategy for a portion of its supply acquisition to increase price stability for its default service customers," Pike said

"Pike has decided, based on a deliberative approach that for default service beginning May 31, 2019, Pike proposes to implement financial hedging for a portion of its acquisition of supply from O&R. Pike will establish counterparty agreements directly with wholesale energy providers for financial products, namely fixed rate energy swaps which convert hourly priced energy to fixed priced energy," Pike said

Pike is currently working with its consultant to select counterparties and details of the financial hedge that it will implement

"Pike will update this Petition with additional information on the details of its proposed financial hedging strategy as soon as that information is available, which Pike expects to be in approximately four weeks," Pike said

"The financial hedging that Pike will implement will increase price stability to customers, is reasonable and in the public interest, and should be approved. Most, if not all, other utilities implement some form of hedging in their default supply plans. Pike expects to provide additional detail concerning its proposed financial hedge and any modifications that may be required to its rate design within approximately four weeks of this filing," Pike said

Pike said that it will continue its current rate design using the Market Price of Electric Supply and the Electric Supply Adjustment Charge, with the costs associated with the financial hedge implemented into this formula. Pike will provide additional details on any necessary modifications to the methodology of its rate design when it has information on the details of its proposed financial hedging strategy.

Pike noted that part of the hedging study explored whether Pike could procure its own medium or long-term contracts, and concluded that to do so, Pike would be required to become a load-serving entity (LSE) on the NYISO system. "Pike continues to explore and pursue becoming an LSE and the potential in future DSPs to potentially obtain longer-term supply contracts as part of its portfolio," Pike said

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