Why Mechanistic Hedging Makes Sense For The Utility Industry

Published By RiskAdvisory

• By Leigh Parkinson,
• Published October 2006
• 5 Page(s)

RiskAdvisory has observed a reassuring trend in utility industry risk management practices: the industry is growing ever more comfortable with the “common-sense” use of hedging techniques. And by “common-sense” we mean non-speculative, mechanistic hedging.

This white paper will describe mechanistic hedging and its practical use as a means to reduce both financial and regulatory risk. It defines mechanistic hedging, explores the likely challenges which the utility industry will continue to face going forward with their hedging practices and describes the benefits that utilities, regulators and consumer advocates might enjoy in developing a collaborative approach. The conclusion determines that mechanistic hedging and a collaborative stakeholder approach is the right prescription for achieving the ultimate goals of managing ratepayer price volatility and reducing regulatory risks and costs for the utility companies that deliver energy-related goods and services to their consumer constituents.