MADISON, Wis., Oct. 31, 2016 /PRNewswire/ -- This August of 2016, article, originally published in the Wisconsin Schools News magazine, discusses the pricing mechanisms commonly used by regulated gas utilities and by retail gas marketers. By understanding the inputs available in both the regulated market and the unregulated market it is then possible to develop performance metrics. Such performance metrics then allow managers of gas purchasing programs to determine accurate results for their programs.
Areas covered include:
Wisconsin Regulated Gas Market – Gas utilities in Wisconsin are regulated by the Public Service Commission of Wisconsin ("PSC"). Their operations and the rates are subject to review and approval by the PSC. Rates for service are composed of a combination of monthly service fees and fees that vary with the amount of natural gas delivered to the end users. Because the PSC requires a conservative approach to gas purchasing the utility gas rates are rarely the cheapest in the marketplace.
Natural Gas Markets – In order for any gas purchasing program to be effective it must consider all three parts of the natural gas supply chain: (1) gas cost, (2) transportation / basis cost, and (3) distribution cost. The price of gas is published in numerous places both on the internet and in print. It is important to remember that the most common price, that referred to as the New York Mercantile Exchange price ("NYMEX"), is based on gas physically delivered at the Henry Hub in Louisiana. That leads us into the second leg of the supply chain – the transportation / basis cost. Like gas, the market also trades the basis cost, however, this pricing is typically found in industry news sources and may require some effort to find. The last part of the supply chain, the distribution cost is regulated by the PSC and can thus be found at either the PSC website or the gas utility website.
Determining Your Gas Metrics – There are two basic strategies for most gas purchasing programs. The first strategy is to measure your purchasing program versus the local gas utility cost. The second strategy is to purchase your gas in accordance with your budget. When using a budget strategy, you should also look at your performance versus the local gas utility. The savings you thought you realized may simply be a reflection of a falling natural gas commodity price and not as a result of good decision making.
Given the number of these programs that lose money in Wisconsin, there should either be someone in-house that can properly evaluate the metrics or there should be consideration given to bringing in outside expertise.
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SOURCE MEP Solutions, LLC