Sunday, January 25, 2004

Behind the rise in gas prices

Patty Walker
Guest columnist

At Cincinnati Gas & Electric and Union Light Heat & Power, we know that increases in the price of natural gas translate into higher home heating and business costs for our customers. Wholesale natural gas prices have increased more than 60 percent this year compared to the previous 12-month period, and as our customers see the effects of this increase hit their bills, they want to know what the gas company is doing to help prevent or reduce such an increase.

First, we do not produce natural gas. We buy all of the natural gas necessary to supply our customers from wholesale suppliers. By law, this cost is passed through dollar-for-dollar to our customers after review by the state public utility commissions. In other words, we make no profit from increases in the wholesale price of natural gas.

Also, the recent increase in wholesale natural gas prices is a national phenomenon that is driven principally by market conditions such as availability of supply, the level of demand, and by the weather (which can affect both supply and demand). But, while we cannot control such conditions, there is much that we can do to reduce the impact of these conditions on our customers.

CG&E and ULH&P rely on a balanced purchasing strategy to manage and hedge the cost of gas. When winter gas prices are projected to be higher, CG&E and ULH&P lock in a portion of their gas supply in the summer months for delivery in the winter. The balance of CG&E and ULH&P's winter natural gas supply is met with either monthly or daily purchases. In each case, we negotiate aggressively with our suppliers to make sure we are getting the best price possible for our customers. We believe our balanced purchasing strategy is one of the reasons that our natural gas costs, on average, have been 12 percent lower then the other major gas utilities in Ohio and Kentucky over the last three years.

In addition, we have worked with our regulators to better control the price fluctuation on customers' bills. In 2003, CG&E and ULH&P began changing their gas cost recovery rates monthly in order to provide customers with a rate that is more reflective of current month market prices and to help reduce the impact of future regulatory adjustments from under-or-over recoveries. We also have programs available to help our customers better manage their energy bills and usage: Budget Billing; Quick-e-Audit; Online Energy Analysis; Weatherization. Customers who want to take advantage of these programs should visit us at www.cinergy.com and select their local utility for details or call (513) 421-9500.

You have my assurance that we at CG&E and ULH&P will continue to do all we can to keep the cost of natural gas as low as possible for our customers.


Patty Walker is vice president of Cinergy Gas Operations, which serves about 500,000 customers in Southwest Ohio, Northern Kentucky and Southeast Indiana.

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