Gas Program FAQs

Natural Gas Program FAQs

How is natural gas priced?
In a retail transaction, the basis and the cost of natural gas are billed by the retail supplier and the local distribution charges are billed by the LDC. Pricing for natural gas is a combination of three separate cost factors:

1) Distribution Charge: The local LDC responsible for receiving gas from the interstate pipelines that serve Massachusetts and delivering it through a set of local distribution pipes to a customer’s location. This service is billed directly to the customer as the local distribution charge.

2) Supply Charge: Under the PowerOptions® contract, the natural gas supply is purchased or priced by the retail supplier using gas commodity prices listed on the New York Mercantile Exchange (NYMEX), on the day the contract is executed. Theoretically, all suppliers purchasing at the same time will get nearly the same prices.  NYMEX gas pricing varies greatly throughout the year. A buyer can contract for one month’s supply or up to four years, depending on the customer’s desire for price certainty.

3) Basis: In addition to the supply costs, the retailer must charge for transporting the gas through the pipeline, billing and servicing the client and covering profit and overhead. This charge is generally called “basis” or an “adder.” The terms and conditions of the contract can affect this cost significantly.

How do I know when the NYMEX is low and I should buy?
The NYMEX market moves up or down based on many unpredictable events including weather, natural gas storage levels and changing supply/demand situations. For example, the continued downturn in the economy has resulted in natural gas commodity prices that are among the lowest levels they have been in the last six to seven years.  On the supply side, the recent development of the Marcellus Shale in the Appalachian Basin has greatly increased natural gas supplies that were previously unheard of this close to the New England market area.  This has contributed to lower commodity as well as basis prices.  That said, the market remains volatile and is subject to change driven by many variables.

What is the fuel use charged by the LDC?
A small amount of gas is used to power the local distribution system and some is lost during the distribution process. An allocation of this gas is added to the amount actually measured at the customer’s meter to determine the amount the supplier needs to deliver to the LDC to service the customer.

What is the “city gate”?
It is the point at which an LDC takes gas from the interstate pipeline.  In most retail contracts, the retail supplier’s delivery point is the city gate. The LDC then picks up gas at the city gate and delivers it over its system to the user.

What is a “capacity charge?”
The capacity charge is not directly billed to the retail customer but it can affect the supplier’s costs. Natural gas takes up physical space in the interstate pipelines and only certain amounts can be transported from one place to another at any one time. A supplier must purchase capacity in the pipeline from the source point of the gas (the well head) to the point where the gas is taken off the pipeline and introduced into the LDC’s distribution system (the “city gate”). When a customer decides to purchase gas from a retail supplier, the LDC is left with previous commitments for capacity to serve that customer which the LDC may no longer need. Under existing rules in Massachusetts the retail supplier, must purchase the capacity the LDC was holding to supply the customer.