Risk Management Strategy and Activities. [Complete Settlement] Union’s commodity risk management strategy is designed to achieve a market responsive price and reduce price volatility. A market responsive price is achieved by finding a balance between the use of physical gas purchases and financial risk management of indexed contracts over time. The objective of the program is not to beat the market. Union does not speculate on price and therefore transfers price risk to financial intermediaries or produces/marketers who are willing to accept this risk. The reduction of price volatility is achieved by hedging a portion of the gas supply portfolio over time in order to temper price swings. The objective is not to interfere with the long term or current trend of prices, but to dampen the exposure from the volatility embedded in gas market pricing. Union’s results during 2000 and 2001 indicate that these goals were achieved in the gas supply portfolio. As shown in response at C1.4, Union’s average purchase price over the period 2000 and 2001 was $5.44 C/GJ versus a market price of $5.38 C/GJ. The market standard deviation was $2.55 C/GJ compared with Union’s standard deviation of $1.67 C/GJ. These results are consistent with the goals of Union’s commodity risk management program and were achieved in a market that exhibited unprecedented volatility and absolute price movement over this twenty-four month period. All parties accept the financial impacts of Union’s commodity risk management plan for 2000 and 2001 as reflected in the gas supply deferral account balances above. Union agreed, at the request of parties to retain an independent consultant to review Union’s commodity risk management policies. The consultant will be asked to consider whether Union’s current policy is an appropriate way to meet the desired objective of providing system customers with supply at market sensitive prices while mitigating the impacts of volatility. The consultant will also consider the overall costs of the policy relative to the benefits achieved. Xxxxx also agreed to circulate the proposed terms of reference to interested parties for comment. The parties also agree that the prudently incurred costs of conducting this review will be recoverable from customers as appropriate. Intervenors acknowledged that the ability to complete such a study for the Customer Review Process for 2003 rates is not possible. Union will bring forward the results of the study along with Union’s response in conjunction with the generic revie...
