{"id":441,"date":"2012-06-22T10:25:29","date_gmt":"2012-06-22T15:25:29","guid":{"rendered":"https:\/\/allenergyconsulting.com\/blog\/?p=441"},"modified":"2012-06-22T10:38:16","modified_gmt":"2012-06-22T15:38:16","slug":"hedging-pitfalls","status":"publish","type":"post","link":"https:\/\/allenergyconsulting.com\/blog\/2012\/06\/22\/hedging-pitfalls\/","title":{"rendered":"Hedging Pitfalls"},"content":{"rendered":"

A timely article related to my <\/span>recent blog on hedging<\/span><\/a> came out two days ago in regards to <\/span>Ft. Lauderdale evaluating hedging their fuel exposure<\/span><\/a>.\u00a0\u00a0 There are some positive and alarming statements from the article.\u00a0\u00a0 Clearly the city can better plan and manage their finances with a steady price of energy.\u00a0 Below are the postitive statements:<\/span><\/span><\/p>\n

City Manager Lee Feldman correctly noted \u201cWhat I’m looking at is budget certainty,” Feldman said. “When we start budgeting, we don’t want to artificially inflate our budget to make sure we have enough money in our fuel budget to protect against price increases.”\u00a0 Mayor Jack Seiler makes a correct statement about hedging\u00a0 “We’re not in the business of playing the market,” Seiler said. “The problem we have is you have such a fluctuation in gas prices.\u201d<\/span><\/span><\/p>\n

So far everything above is reasonable and perfect for a hedging program.\u00a0 The alarming parts are below:<\/span><\/span><\/p>\n

\u201cPalm Bay accumulated almost $600,000 in savings during the three years the program was in place, said John Cady, the city’s fleet services division manager.\u201d
\n<\/span><\/span>The word of savings is not correct in the context of the hedge program.\u00a0 It is true the hedge saved you, but I think the important stress needs to be budget and planning certainty.\u00a0 Because it could have been easily $600,000 in extra cost.<\/span><\/span><\/p>\n

Another concerning statement \u201c”That’s why you want to have somebody on your team, basically an adviser in the fuel market, telling you \u00a0now’s the time to place your hedge and now’s the time not to,” Feldman said.\u201d
\nOnce again this leads you off the track of the prime reason, which is budget certainty and planning.\u00a0\u00a0 If you believe someone can advise you of better timing \u2013 which I don\u2019t doubt \u2013 then you now want to have your cake and eat it to.\u00a0 You want to speculate and make sure your budget certainty also makes you good money.\u00a0\u00a0\u00a0 The best method for a pure hedge program is not timing the markets via the advice of a person, but to develop a systematic method of building the hedge.\u00a0 I do believe in good trading, but I don\u2019t think you want to be an active player in the trading markets as a city, when you prime goal is budget certainty for better planning.\u00a0\u00a0 A trader\u2019s goal is to make money.\u00a0 The risk reward profiles are much different.\u00a0 I would advise someone in the energy business of that route, but not an entity, not staffed or experienced in the energy world.<\/span><\/span><\/p>\n

A systematic method allows all stakeholders to remove any concerns of manipulation and\/or risk taking.\u00a0 As I pointed out in the previous blog, I have many years in the trading environment along with the corporate planning environment.\u00a0\u00a0 My group at AEP was instrumental in designing the first approved hedging program by the public utility commission for our supply chains consumption of on-road diesel and gasoline.\u00a0 At All Energy Consulting we understand the energy markets and can effectively navigate you in deciding and designing a hedging program for the various energy commodities.<\/span><\/span><\/p>\n

 <\/p>\n

Your Energy Consultant,<\/span><\/span><\/p>\n

David K. Bellman<\/span><\/a><\/p>\n

614-356-0484<\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

A timely article related to my recent blog on hedging came out two days ago in regards to Ft. Lauderdale evaluating hedging their fuel exposure.\u00a0\u00a0 There are some positive and alarming statements from the article.\u00a0\u00a0 Clearly the city can better plan and manage their finances with a steady price of energy.\u00a0 Below are the postitive […]<\/p>\n","protected":false},"author":1,"featured_media":216,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,3,26],"tags":[148,160,161,104,11],"class_list":["post-441","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","category-natural-gas","category-oil-petroleum-products","tag-hedging","tag-hedging-progam","tag-reward","tag-risk","tag-trading"],"_links":{"self":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/441","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/comments?post=441"}],"version-history":[{"count":3,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/441\/revisions"}],"predecessor-version":[{"id":443,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/441\/revisions\/443"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media\/216"}],"wp:attachment":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media?parent=441"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/categories?post=441"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/tags?post=441"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}