National Energy Marketers Association Commissioner Donald L. Mason, Esq. Vice Chairman NARUC Gas Committee March 31 st,2004

Consumers need accurate price indices As states begin to implement Choice Programs it is necessary to address gas cost recovery (GCR) or purchase gas adjustment (PGA) formulas. Many states have annual or quarterly filings of GCR and PGA rates. If the GCR/PGA does not represent the market then the marketers are disadvantaged.

Choice needs accurate indices Marketers attempt to enroll customers against the LDC rate. The LDC rate is the price to beat. If the LDC heads into the winter with a price that is under recovering, the marketer will not be able to attract customers. LDCs have no money at risk because in the spring they can file for an under recovery. The downside is a consumer to a fixed GCR price does not realize that the price quote in the fall is not a firm price. It is subject to adjustments

Marketers offer products based on price indices The product of the leading Ohio marketer uses a fixed price contract adjusted annually against the NYMEX. Therefore it is important that the marketer and customer are relying on accurate information.

Alternative Regulation Dayton Power and Light—(1990’s)Fixed price contracts to secure a portion of capacity, another portion used one year blocks locked in against the NYMEX index. Presently Vectren Energy Ohio (VEDO) and Cincinnati Gas and Electric (CG&E) adjust the expected gas cost (EGC) monthly based on NYMEX index so that the GCR reflects the real market. This reduces “recoveries” and adds clarity for customers. Marketers are not disadvantaged.

Indices affect small LDC customers Small LDC without “choice” programs can lock the EGC in for months to guarantee price stability. Pike, Eastern, and Southeastern gas companies locked prices in for 18 months and then again for 30 months Savings at a time of high price volatility for the 15,400 total Pike, Eastern, and Southeastern customers was $2.837 million