Natural Gas FAQs
What is the history of Natural Gas Deregulation in Massachusetts?
Until recently, natural gas local distribution companies (LDCs) operated as monopolies in their designated service territories under regulatory authority of the Department of Telecommunications and Energy (DTE). Each LDC delivered natural gas supply under rates reviewed and approved by the DTE.
In July 1997, the DTE ordered the natural gas LDCs to allow independent suppliers to sell gas directly to end-user customers at competitive rates using the LDC distribution systems. Since then, there has been steady progress to allow even the smallest retail customers to choose their natural gas supplier. The LDCs still provide distribution services under a regulated price structure, bringing the natural gas to your home or business. LDC’s are also still responsible for maintenance of the natural gas lines in the street and for the service connection to your home or business.
How is natural gas priced under deregulation?
Pricing for natural gas is a combination of three separate cost factors:
1) Distribution Charge: The local LDC is still 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 1 month’s supply or up October 2008, 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.
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.
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 demand situations. For example, the growing New England economy and the new gas-fired electric generating plants coming on line have increased demand. We have observed that late spring and summer offer favorable purchasing opportunities in the Northeast. That said, the market remains volatile and subject to change driven by many variables.
Is the PowerOptions price the lowest available?
The PowerOptions contract offers one of the most competitive rates in the industry, coupled with a very secure contract. When comparing bids, you should carefully review the contract terms and conditions being offered by the various suppliers. The PowerOptions contract provides full, firm supply, the financial performance of Hess Energy and carefully negotiated clauses surrounding permissible changes because of regulatory change or certain unavoidable circumstances interfering with delivery. Many contracts are not are favorably negotiated and may significantly shift certain volume and price risks to you.
What is the "city gate"?
It is the point at which an LDC takes gas from the main 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 supplie’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 sourcepoint 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.
