NGC Offers Price Protection for Utilities, End Users

As last winter showed, big temperature and price swings can wreak havoc on a utility's gas procurement and storage plans. But there's really no need to fret, according to NGC Corp. It has rolled out a new line of gas insurance packages, designed to reduce utility and enduser exposure to volatile market conditions.

"If you remember what happened last [year], people were putting gas into storage [in the summer] at $2.40 and $2.50 and they were pulling it out in January at $2.10. That makes the utilities pretty uncompetitive," said Mark Ludwig, NGC's senior vice president in Chicago. NGC's Storage Investment Insurance provides protection from falling prices for utilities that have already purchased their winter season gas supply."[B]asically for a premium, utilities or industrials can buy the right to sell us gas back at a location at a price. It limits their downside and keeps them competitive in an El Nino-type winter."

Ludwig said an LDC might want to begin buying gas for storage today at $2.70/MMBtu. But if they fear the gas might not be worth that in January 1999, NGC could offer to buy the gas from them in Chicago in January for $3.10/MMBtu. The premium customers pay is dependent on the location NGC would be buying gas back, the month in which it would be buying it and the price NGC would pay.

Another insurance product, NGC's Gas Purchase Protection (GPP), offers customers protection from future increases in gas market prices. The purchase of GPP allows the customer to lock in a pre-specified volume of gas for a future price and for a future delivery date.

"The size of [NGC], our ability to deliver and to transport and of course the financial market," enable NGC to offer these products, said Ludwig.

Rocco Canonica

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