Should the use of hedging by Canadian natural gas distributors be encouraged by regulators?

The desirability of the active use of natural gas futures and other financial derivatives by local distribution companies for price hedging purposes is considered. The impact of deregulation on the Canadian natural gas market, security of supply issues, and special aspects of natural gas futures are discussed. Given the potential savings of short-term relative to long-term contracts, the increasing security of supply, and the salient possibility of low (if not negative) costs in using these contracts, it is argued that regulators should seriously consider the use of hedging by natural gas distributors. Hedging should be considered a tool that can be used to obtain the lowest reasonable cost for natural gas for the consumer, and is an alternative to the current practice which allows local distribution companies to shift the entire price risk to ratepayers. Both regulators and gas distributors may in the future face problems if they fail to protect customers against unusual fluctuations in the spot markets through insightful hedging. 14 refs., 2 figs., 2 tabs