1. (a)

   1. (1) In Order No. 3 of Docket No. 01-023-NOI styled In the Matter of a Notice of Inquiry into Whether Arkansas Gas Utilities Should Integrate Gas Price Hedging, Fixed Price Options and Other Alternate Mechanisms into Gas Procurement Plans, the Arkansas Public Service Commission adopted Policy Principles for Gas Procurement Plans of Utilities (“policy principles”).

   2. (2) The policy principles provide as follows:

      1. (A) The Arkansas Public Service Commission intends that these will guide gas utilities in their purchasing decisions as such decisions relate to the issues that were under review in the NOI;
      2. (B) The Arkansas Public Service Commission interprets these policy principles as being consistent with Arkansas Code § 23-15-103, the “least cost purchasing statute”; and
      3. (C) Modifications to these principles and/or this part may be required as more experience is gained in these areas.

2. (b)

   1. (1) Each gas utility is expected to take all reasonable and prudent steps necessary to develop a diversified gas supply portfolio.

   2. (2) The portfolio should consist of an appropriate combination of different types of gas purchase contracts and/or financial hedging instruments that is designed to yield the optimum balance of:

      1. (A) Reliability;
      2. (B) Reduced volatility; and
      3. (C) Reasonable price.

   3. (3) In so doing, each utility should take into consideration various factors, including but not limited to:

      1. (A) Its particular circumstances;
      2. (B) The demographics of its customers;
      3. (C) The then-current market projections of both volatility and price;
      4. (D) Supply/demand estimates; and
      5. (E) Other relevant information that is available in the industry.

3. (c)

   1. (1) On an annual basis, each utility should submit its gas supply portfolio plan, along with its contracting and/or hedging objectives, to the General Staff for the General Staff’s review and determination as to whether or not it appears to be consistent with these policy principles.
   2. (2) The reasonableness and prudence of each utility’s contracting and hedging decisions shall be judged by the market circumstances and pertinent information that were available to the utility at the time it made those decisions.
4. (d) Each gas utility should submit proposed revisions to its Purchased Gas Adjustment Clause (PGA) or Gas Supply Rate (GSR), as appropriate, to reflect the flow-through of any costs associated with hedging transactions.
5. (e) To the extent that there are fee-based costs associated with a particular financial risk management instrument, as those costs relate to the acquisition of natural gas supplies, such costs may be recovered through the utility’s PGA.

6. (f) Each gas utility should maintain records for any hedging programs it chooses to utilize that document the following:

   1. (1) The overall risk management plan, including the utility-specific goals and guidelines;
   2. (2) A policy and procedures manual;
   3. (3) Corporate, including management and board of directors, reporting, monitoring, and tracking requirements;
   4. (4) An evaluation mechanism to measure hedging program performance; and

   5. (5) Accounting information to determine the:

      1. (A) Fees, gains, and losses that have flowed through the PGA; and
      2. (B) FAS and Internal Revenue Service accounting treatment for hedging transactions.
7. (g) Each gas utility should engage in appropriate consumer education efforts to inform as many of its customers as practical concerning the utility’s good-faith estimate of gas prices for each upcoming winter heating season.

8. (h)

   1. (1) Levelized billing or average payment plans should be made available to all residential and small business customers.
   2. (2) Implementation of this principle should include sufficient customer education efforts to encourage maximum customer participation with particular attention to low-income, fixed-income, and elderly customers.
   3. (3) Any gas utility needing assistance with efforts to identify, educate, and inform low-income, fixed-income, and elderly customers should contact the Arkansas Public Service Commission for help and suggestions for designing an education plan designed to reach these customer groups.
9. (i) The Arkansas Public Service Commission encourages each gas utility to explore and, if appropriate, develop and implement fixed-commodity gas supply options for its customers.

10. (j)

    1. (1) The Arkansas Public Service Commission states in Order No. 3 in Docket No. 01-023-NOI that the purpose of the policy principles was to encourage gas utilities to take reasonable and prudent steps to:

       1. (A) Diversify their supply portfolios;
       2. (B) Procure reasonably priced gas supplies;
       3. (C) Mitigate gas price volatility; and
       4. (D) Increase both educational efforts and supply pricing options for gas consumers.
    2. (2) On November 20, 2001, the Arkansas Public Service Commission issued Order No. 5 in this docket, initiating proceedings to develop rules to implement the policy principles.

Codification Notes: This section was promulgated as Section 1 of the Natural Gas Procurement Plan Rules prior to codification in the Code of Arkansas Rules. "FAS" means financial accounting standards. "NOI" means notice of inquiry.