Laclede Gas Company uses an aggressive approach to moderate the impact of price spikes on our customers that is designed to help ease their financial pain. Our objective is to increase price stabilization through our gas supply risk management program. This involves the utilization of a variety of financial instruments to “hedge” approximately 70 percent of our normal gas purchases.
The Missouri Public Service Commission (MoPSC) allows Laclede to use these financial tools, which include futures contracts and weather risk insurance to help stabilize natural gas prices. Prior to 1995, few natural gas utilities used such financial tools. By the 2004-05 winter heating season, 70 percent of the gas utilities surveyed by the American Gas Association (AGA) used financial instruments to hedge at least part of their gas supplies.
Laclede’s broad portfolio of financial hedging instruments typically provide some offsets to higher natural gas prices during the winter. For example, despite the unprecedented rise in the wholesale price of natural gas this summer and fall, our hedging programs were able to limit the increase in winter heating bills to about 38 percent over last year’s rates for Laclede Gas customers the first two months of winter, as announced in our Purchased Gas Adjustment in early November 2005. Meanwhile, other areas of the country projected increases of 50 to 71 percent in winter heating bills over last year, according to data announced by the U.S. Department of Energy.
Another way Laclede hedges physically is through the use of our underground gas storage facilities located in northern Louisiana and north St. Louis County. Many utilities such as Laclede use underground storage areas (such as salt caverns or depleted aquifers), while some others (including those in New England, where the geology is different) use above-ground tanks that store natural gas in a super-chilled, condensed form known as liquefied natural gas.
Storage can account for half of some utilities’ natural gas supplies on winter’s coldest days – contributing to reliable service. Laclede’s storage facilities allow the Company to purchase natural gas during the summer months, when prices have historically been more favorable, and store it for future use. At the same time, the savings are passed through to customers. Natural gas utilities often purchase natural gas during warm-weather months, and store it for use on cold winter days.
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