Municipal Gas Aggregation

Local Utility:

Dominion East Ohio

Population:

85,000.

Challenge:

Community leaders need to decide when to lock-in a fixed price for the upcoming 6 months of the winter heating season. It is late August and community leaders have until September 10th to "strike" their winter price based on the prevailing NYMEX natural gas futures market. A number of factors could and will influence the NYMEX prices during that time. Officials are not sure how the market will move, what will cause it to move and when is a good time to strike the winter price.

Buying Group Description:

Single community seeking offers for Residential and Commercial customers.

Resolutions:

• Community leaders need to decide when to lock-in a fixed price for the upcoming 6 months of the winter heating season. It is late August and community leaders have until September 10th to "strike" their winter price based on the prevailing NYMEX natural gas futures market. A number of factors could and will influence the NYMEX prices during that time. Officials are not sure how the market will move, what will cause it to move and when is a good time to strike the winter price.
• By trending market price volatility, the consultant is able to calculate how much the price could go up over a given period of time. This "Value at Risk" (VAR) was used to help quantify short-term risk/reward potential.
• (i) A favorable storage report came out on Thursday morning at 10:30 E.T., (ii) the client was immediately notified, (iii) prices declined as expected, (iv) client instructs the consultant to strike the winter price, (v) supplier purchases the gas on the NYMEX futures market, and (vi) the residents receive a very attractive price for the winter heating season.

• Mr. Burns has briefed them on the factors that are likely to drive the market. Those factors include, but are not limited to: near-term weather reports, hurricane activity in the Gulf of Mexico, natural gas storage reports, crude oil price volatility driven by unrest in the Middle East, nuclear power plant planned and unplanned outages, and technical analysis of natural gas price charts.
• By knowing the volume of natural gas that will be consumed during the winter months along with the price volatility of the futures market, the consultant is able to derive a VAR of $2.4 million over the next 12 days at a 95% confidence interval. This information allows the Mayors to know the limits of how much their residents stand to gain or lose on a collective basis during that time period.