The following sentence struck me in the article about the 14.5 percent rate increase approved by Clark Public Utilities commissioners: “However, last week’s ice storm was so expensive that higher rate increase options were added” (“Clark Public Utilities rates will jump 14.5 percent as of March 1,” The Columbian, Jan. 23).
Unfortunately, the article did not elaborate. Some online research enabled me to read between the lines that the explanation lies in the role of the spot price for electricity that went through the roof (from an average of $70 to peaks of $1,000 a megawatt hour on the Mid-Columbia trading hub) during the recent Arctic freeze. In other words: While the rate charged to the consumer remained flat, the utility had to pay an enormous premium to supply the vastly increased demand for power during the cold spell.
No wonder the already existing budget shortfall was suddenly increased in such a fashion that it necessitated a last-minute extra rate increase.
But what if the utility had hedged against such a sudden catastrophic spot price increase by locking in fixed-price future deliveries on that same trading hub? Such hedging is possible. It might be prudent if the commissioners considered this possibility to avoid future unpleasant surprises.
