Review of LDC risk management policies and practices
The Brattle Group reviewed the hedging policies and practices of a large U.S. gas utility and recommended that the utility improve its volatility measurement techniques and move toward a prospective volatility metric that would better anticipate changing market conditions. We recommended changes to the monitoring report for the utility’s Risk Management Committee (RMC) to allow the RMC to monitor exposure of unhedged positions and to present a more accurate profile of likely option exercises and expected annual gas costs. We identified limitations of the utility’s existing risk management program resulting from restrictive hedge acceleration rules and option budget constraints.