Utilities' Program Examined ; Mayor Bach Asks City Auditor to Review Reported Natural Gas Hedging Loss of $140 Million

By Mendoza, Monica | The Gazette (Colorado Springs, CO), May 23, 2013 | Go to article overview

Utilities' Program Examined ; Mayor Bach Asks City Auditor to Review Reported Natural Gas Hedging Loss of $140 Million


Mendoza, Monica, The Gazette (Colorado Springs, CO)


As the Colorado Springs city auditor reviews the natural gas hedging program of Colorado Springs Utilities, speculation and reports are flying about $140 million in losses.

Mayor Steve Bach sent City Auditor Denny Nester an email asking the status of the $140 million natural gas hedging losses, Nester said. The email began to circulate.

It's a big number and already is controversial, Nester said.

But the story may not be so black and white. For sure, he said, the story is not complete. He's not ready to give final numbers on the natural gas hedging program and described his work on the audit as being about half complete.

He is gathering 15 years' worth of data, wants to consult natural gas industry experts, and plans to evaluate the total program, he said.

In the past 15 years, Utilities has purchased about $2 billion in natural gas through its hedging program. Under the program, Utilities bought gas at a fixed rate, locked in for three years in a bid to deliver stable rates to natural gas customers.

The $140 million could be losses for the total 15 years; or it could be losses for the past five years, Nester said. He won't know until he completes the audit, which he expects to do in the next 60 days.

"We are trying to make sure we put this in the proper context," Nester said.

Utilities halted its natural gas hedging program in 2011 when it saw that predicting the gas market was not going its way.

All the while, ratepayers have had consistent rates, said Bill Cherrier, Utilities chief planning and finance officer. A typical customer using 60 cubic feet paid $34.50 a month in 2002; $47.55 in 2007; and $46.63 in 2013.

"The goal was to provide price stability," he said. "It did exactly what we intended it to do."

The hedging program never was about chasing the lowest prices, Cherrier said. It was about providing stability in the rates to the customers.

Utilities began the natural gas hedging program in 1997, when the market saw sharp increases and sharp decreases month to month in natural gas prices. Until 2006, Utilities was being praised for its savvy program, which that year reported saving ratepayers $32. …

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