Factors That Impact Your Gas Supply Rate

The New York Mercantile Exchange (NYMEX) price reflects the supply price at a major trading hub known as Henry Hub, which is in Louisiana. There are various interstate pipeline charges that gas shippers, including gas utilities, incur to get the gas from Henry Hub to New Hampshire. As a result, NH gas utilities' cost of gas rates will be higher than published NYMEX prices because of those charges. Gas utilities typically contract for firm (guaranteed availability) pipeline capacity (space in the pipeline) which enables them to provide reliable service. Utilities pay fixed costs for that capacity, usually throughout the year, whether the capacity is being fully used each day. In some cases, summer pipeline capacity is available at much less expensive rates than winter period pipeline capacity because the interstate pipelines are not being fully utilized during summer periods. These lower costs can translate into lower summer period cost of gas rates.

NH gas utilities are required to provide reliable service to their customers. To do that, they must have contracts for an assortment of more costly supply resources to serve winter period load requirements than for summer periods. These resources include a variety of firm pipeline capacity, underground storage, and winter peaking gas supply assets. Winter peaking gas supply contracts are typically structured to meet load requirements during the coldest 10, 20 or 30 days of the winter period and are usually the most expensive resources in a supply portfolio. These costs need to be factored into the winter period cost of gas rate calculations and tend to make the winter period cost of gas rate more expensive than the summer rate. Without these firm contracted winter period resources, the gas utilities would not be able to meet gas demand on the coldest days.

In New Hampshire, gas utilities pre-purchase significant volumes of production area gas supply during the summer period and inject the gas into natural gas storage facilities in New York, Pennsylvania, Michigan, and Ontario, which are closer to the markets in the northeast. The storage gas commodity is priced based on actual costs at the time it was purchased for injection into storage and includes the related pipeline transportation and storage facility costs. When this gas commodity is withdrawn from storage during the winter months, the average inventory price of the storage gas withdrawals is factored into the cost of gas rate. This storage gas commodity price, for reasons stated above, may not correlate with current winter period market prices.

New Hampshire's gas utilities hedge a portion of their winter period gas supply requirements under pre-approved, structured hedging policies, designed to stabilize supply rates. These hedging policies require the gas utilities to essentially lock in the price of a small portion of their winter period gas supply requirements in advance of when the gas supply will be utilized. This activity is designed to mitigate gas commodity price volatility but can also somewhat distort the cost of gas rate on your monthly bill to a higher or lower level than current NYMEX gas pricing that may be reported online or in the news.

New Hampshire's gas utilities have liquid natural gas and/or propane air peak-shaving gas plants located strategically on their distribution systems. These peak-shaving plants include buildings that house the electronic controls and boilers, and secure outside yards that provide space for vaporizers that convert liquefied gas supplies into gas vapor, multiple storage tanks for the liquefied gas supplies, and air compressors to push the vaporized gases into the distribution pipes. These peak-shaving plants are used to provide a last source of gas supply to utility customers when all other more traditional sources of pipeline gas supplies are being fully utilized or not available. All costs associated with these peak-shaving facilities are factored into the winter period cost of gas rates, increasing the unit cost reflected on your monthly gas bill.

Another factor that could cause a utility's cost of gas to be different from the NYMEX price is an over- or under-collection from a prior cost of gas period. Any over- or under-collection is carried forward to the same period (summer or winter) in the following year. For example, an under-collection at the end of a winter period means the utility's gas costs exceeded gas cost revenues and would result in the under-recovered costs being passed on to customers in the following winter period, with interest, thus artificially increasing the costs for the next winter period. Conversely, an over-recovery from a prior period would have the reverse effect, thus lowering the next period cost of gas rate.