Fortnightly
Iowa Issues Gas Price-Hedging Guidelines
October 15, 1995By Phillip S. Cross
Concluding its inquiry into the use of financial derivatives by the state's natural gas local distribution companies (LDCs), the Iowa Utilities Board (UB) has given utilities the burden of showing that financial transactions are not "overly speculative." At a minimum, the UB expects an LDC's financial position to be "clearly associated with a physical quantity of gas purchased at indexed prices." When discerning between hedging and speculating in a swap transaction, an LDC must show that the swap includes the same quantity, duration, and pricing reference point as the physical gas. The UB will require filing of relevant data as part of the purchased-gas reconciliation process when associated costs and revenues are flowed through to
ratepayers. Re Gas Price Hedging, Docket No. NOI-94-1, Aug. 16, 1995 (Iowa U.B.).
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