Prudence of hedging

On several occasions, in response to prudence challenges of utilities natural gas procurement costs, a Brattle principal has provided testimony regarding the appropriate horizon of the hedges, the hedging instruments relied upon, and the interaction of natural gas and power hedging. The testimony explained why after-the-fact outcomes of hedges being “out of the money” is not a useful measure of the benefit or prudence of hedging and why alternative procurement practices proposed by intervenors would not produce reliably better hedging in the future. The testimony was presented in connection with a regulatory proceeding regarding the recovery of natural gas costs.