Answering your questions: Gas prices and the wholesale market   

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For the past few days I’ve been talking to customers on e-mail about our requested natural gas decrease in Oregon. As you might expect, just about everyone I’ve talked to has been appreciative of the decrease request. (Who wouldn’t be happy about paying less, right?)

But a few people have asked a question about why the rate reduction we requested in Oregon, and those we’ve already requested in Washington and Idaho, don’t mirror the current price of natural gas on the wholesale market. It’s a great question and there are several reasons.

The lowest cost on a trading market can never be predicted in advance, so companies hedge their buys to round out the lowest price in an attempt to smooth out the volatility of the wholesale markets. We purchase gas periodically throughout the year with price being a primary consideration. We buy enough gas this way to meet about two-thirds of what our customers will use throughout the winter. The remaining gas is purchased as it is needed to meet your needs. If prices are favorable, we may also purchase gas at a fixed price into the future.

This aspect of natural gas is always a bit tricky to understand, and a lot of that comes from people making comparisons to the price you pay for gasoline or diesel fuel for your car. Unlike those fuels, of which the ups and downs are readily apparent when you fill up your car, we set a price for a longer period of time and then make up the difference (up or down) later with the state commissions. During that time we use pricing strategies to minimize volatility. We’re always working to get you the most fair and reasonable price for your energy dollar.

So while you don’t immediately see reductions to your natural gas prices when the wholesale market costs fall, you’re also protected from the sudden spikes as well. Remember two years ago when the price of gasoline was nearly $5 a gallon? You couldn’t help but buy it if you needed it. Our buying strategies help us avoid buying at high prices, unless it’s really necessary.

It’s also worth noting that 75 percent of your natural gas bill is the cost of the gas itself. We don’t mark up the cost of gas. You pay what we pay. It’s a pass through cost. The remaining 25 percent of your bill covers our cost of providing service through our distribution system.

If you have any additional questions about natural gas, drop us a line in the comment section. There is also a lot of information over on our Conversation page.
 
 
Posted by  System Account  on  9/3/2009
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