What is a Price Index?

Price Indexes are created by Price Reporting Agencies (PRAs) to serve as benchmarks for various commodities, such as energy, metals and agricultural products. In the North American natural gas industry, these benchmarks are used for a variety of purposes, such as the point of reference for physical market purchases and sales, the underlying price in financial derivative contracts, the “cash-out” mechanism interstate pipelines use to settle imbalance positions, and by state public utility commissions to evaluate the prudency of the natural gas purchased by regulated local distribution companies and electricity generators.