National Energy Marketers Association

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National Energy Marketers Association

• Commissioner Donald L. Mason, Esq.
• Vice Chairman NARUC Gas Committee
• March 31st,2004

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Consumers need accurate price indices

• As states begin to implement Choice Programs it
  is necessary to address gas cost recovery (GCR)
  or purchase gas adjustment (PGA) formulas.
• Many states have annual or quarterly filings of
  GCR and PGA rates.
• If the GCR/PGA does not represent the market then
  the marketers are disadvantaged.

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Choice needs accurate indices

• Marketers attempt to enroll customers against the
  LDC rate. The LDC rate is the price to beat.
• If the LDC heads into the winter with a price
  that is under recovering, the marketer will not
  be able to attract customers.
• LDCs have no money at risk because in the spring
  they can file for an under recovery.
• The downside is a consumer to a fixed GCR price
  does not realize that the price quote in the fall
  is not a firm price. It is subject to adjustments

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Marketers offer products based on price indices

• The product of the leading Ohio marketer uses a
  fixed price contract adjusted annually against
  the NYMEX. Therefore it is important that the
  marketer and customer are relying on accurate
  information.

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Alternative Regulation

• Dayton Power and Light(1990s)Fixed price
  contracts to secure a portion of capacity,
  another portion used one year blocks locked in
  against the NYMEX index.
• Presently Vectren Energy Ohio (VEDO) and
  Cincinnati Gas and Electric (CGE) adjust the
  expected gas cost (EGC) monthly based on NYMEX
  index so that the GCR reflects the real market.
  This reduces recoveries and adds clarity for
  customers.
• Marketers are not disadvantaged.

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Indices affect small LDC customers

• Small LDC without choice programs can lock the
  EGC in for 24-30 months to guarantee price
  stability.
• Pike, Eastern, and Southeastern gas companies
  locked prices in for 18 months and then again for
  30 months
• Savings at a time of high price volatility for
  the 15,400 total Pike, Eastern, and Southeastern
  customers was 2.837 million

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