      |
|
EnergyWindow MarketElert TM - April 2004 Supplement Case Study
Consider the case of an EnergyWindow client that had a number of facilities in Columbia Gas of Ohio (CGOH) territory. We obtained historical monthly gas cost recovery rates (GCRR) from the Public Utility Commission of Ohio (PUCO) Web site (see http://www.puco.ohio.gov/Puco/IndustryTopics/Topic.cfm?doc_id=300). We then compared the historical monthly rate charged by CGOH to the historical NYMEX Henry Hub (HH) monthly settle price (after some analysis to show that the NYMEX index was as appropriate as any of several other possible indexes). The chart below illustrates this comparison.
Last October, the client posted Requests for Quotation (RFQs) for gas service for a number of their facilities. An indexed price, based on NYMEX HH monthly settle prices, was requested. Bidding was conducted on the basis: we started the bidding at the average historical basis imputed from the comparison of the CGOH GCRR and NYMEX HH, which equaled $2.13 per mcf (million cubic feet). A reserve bid value of the basis was set somewhat below the starting bid. Several suppliers bid; the winning bid was $1.50 per mcf.
The resulting contract price, based on monthly NYMEX HH settle prices and the average winning basis, is shown on the graph, along with the CGOH GCRR, for the first four months of the contract. The client later converted the contract to a fixed price of $6.03 per mcf (shown as the horizontal line on the graph) based on their evaluation of future prices in November. The resulting savings so far has been approximately $38,000, or about 15%.
Note that in this case, because GCRRs tend to lag wholesale market prices (particularly as in CGOH where rates are set quarterly), the indexed price would have been significantly above the GCRR in January. Even so, indexed costs for this contract, so far, would have still been slightly (2%) lower than the GCRR. With GCRR higher than the indexed price, presumably the client would now have begun to save more.
Copyright © 2004 EnergyWindow, Inc. All Rights Reserved. |
 |