Natural Gas Price Volatility Mitigation

PURPOSE: This rule represents a statement of commission policy that natural gas local distribution companies should undertake diversified natural gas purchasing activities as part of a prudent effort to mitigate upward natural gas price volatility and secure adequate natural gas supplies for their customers. (1) Natural Gas Supply Planning Efforts to Ensure Price Stability. (A) As part of a prudent planning effort to secure adequate natural gas supplies for their customers, natural gas utilities should structure their portfolios of contracts with various supply and pricing provisions in an effort to mitigate upward natural gas price spikes, and provide a level of stability of delivered natural gas prices. (B) In making this planning effort, natural gas utilities should consider the use of a broad array of pricing structures, mechanisms, and instruments, including, but not limited to, those items described in (2)(A) through (2)(H), to balance market price risks, benefits, and price stability. Each of these mechanisms may be desirable in certain circumstances, but each has unique risks and costs that require evaluation by the natural gas utility in each circumstance. Financial gains or losses associated with price volatility mitigation efforts are flowed through the Purchased Gas Adjustment (PGA) mechanism, subject to the applicable provisions of the natural gas utility’s tariff and applicable prudence review procedures. (C) Part of a natural gas utility’s balanced portfolio may be higher than spot market price at times, and this is recognized as a possible result of prudent efforts to dampen upward volatility. (2) Pricing Structures, Mechanisms and Instruments: (A) Natural Gas Storage; (B) Fixed Price Contracts; (C) Call Options; (D) Collars; (E) Outsourcing/Agency Agreements; (F) Futures Contracts; and (G) Financial Swaps and Options from Over the Counter Markets; and (H) Other tools utilized in the market for cost-effective management of price and/or usage volatility. AUTHORITY: sections 386.250, RSMo 2000 and 393.130, RSMo Supp. 2003.* This rule originally filed as 4 CSR 240-40.018. Original rule filed May 1, 2003, effective Dec. 30, 2003. Moved to 20 CSR 4240-40.018, effective Aug. 28, 2019. *Original authority: 386.250, RSMo 1939, amended 1963, 1967, 1977, 1980, 1987, 1988, 1991,1993, 1995, 1996; 393.130, RSMo 1939, amended 1967, 1969, 2002.