We have over 9,600 MW of installed gas fired generation and burn an average of three quarters of a bcf per day ranging from a high of 1.5 bcf in the summer to zero gas burn on certain fall and spring days. We also use financial options, embedded in our physical supply, such as puts, calls, collars, and to a lesser degree fixed price contracts. I consider this to be a reasonable strategy for several reasons. Our fuel costs are reviewed by the Public Utility Commission and any purchase that is found unreasonable is disallowed. Having had the experience of these reviews, the premise in Problem 1, that the utility can do better than some target in the acquisition of gas, concern's me.
Gas is a freely traded commodity with transparent pricing.
Gas purchased under contracts that float with an index price is by definition purchased at the market price. Trying to purchase gas substantially below an index price over a long period of time is little more than a gamble. The Railroad Commission must be clear as to the goal of such a proposal. The current problem is really a short term anomaly. The same cold weather caused gas and electric consumption to be higher than normal.