THE SOURCE - Summer 2017 - 17

Unbeknownst to me, I had willfully
stepped into one of the most challenging
and fulfilling roles at the utility. I did not
know about the price increases to about
$10 per MMBtu in 2000. But I quickly saw
prices again reach that level in 2003. I
knew I had to learn (and by learn, I mean
immediately) the fundamentals driving
the supply and demand of natural gas
in order to best manage our supply
and contain our costs. So I learned
the fundamentals of supply and I was
gratefully aided by many APGA members
and contributors to APGA as well, who I
cannot thank enough.
But I found this wasn't enough. In
my opinion, the price swings in natural
gas (up and down) could not be easily
explained by simple supply and demand
issues. There was more at work here,
and more to learn. So I threw myself into
technical analysis. By technical analysis,
I mean the study of prices via various
charting techniques to determine future
price direction. With natural gas being
both a futures and physical market (and
the futures market is what I am primarily
discussing here), I had to learn who the
market participants were, what their
objectives were, and how charting could
tell their story. So I became a student of
the market and remain so today.
In addition to current natural gas
fundamental information, I learned
how to use technical pricing charts to
recommend strategies to our natural
gas supply committee in the timing
of natural gas commodity forward
purchases or hedges in order to contain

our commodity costs. Notice that I
used the term "hedges." We are not
attempting to beat any market. That is
not our goal. Our goal is to minimize our
customers' price risk by hedging portions
of our future consumption. Our hedges
consist of fixed price transactions derived
from the futures market executed with
producers, the use of storage, which we
also hedge with producers, and options
again executed with producers. There
were periods where we were short-term
hedgers, periods where we relied more
upon options, and periods where we
were long-term hedgers. During the past
year, as a result of last year's warm winter,
prices in the futures market including the
forward curve, which is very important,
declined. We became long-term hedgers.
Our Board has set a residential
customer rate comprised of a fixed
monthly availability charge currently
at $5.50, and a retail rate based upon
actual consumption per Mcf currently
at $8.01. The retail rate collects the
cost of the commodity, which currently
constitutes approximately 45 percent
of our residential customer's cost and
has been as high as 75 percent of the
rate when prices were higher. We do
not want this to increase. We want to
hold this rate firm or lower for as long
as possible, and we do so by hedging
when we find it appropriate and
justifiable to do so.
Still, hedges represent
commitments to purchase natural gas
at a fixed price for specific period(s) of
time, effectively confirming a rate or,

insuring price risk is contained, in our
opinion.
I never forget that.
My office is on the third floor
of our main building in downtown
Huntsville. If I walk down the hall
outside of my office, there is a window
that overlooks our customer parking
area. When I am developing strategies
on how to contain or minimize costs,
I sometimes have to take a break to
clear my head. I walk down the hall
and I look out that window, and I
watch the customers coming in to pay
their bills. There are all kinds: elderly;
mothers with children; and, many are
undoubtedly on fixed incomes. And it
reminds me very assuredly why we are
here, and why I am here: to provide
the best affordable utility service
we can.
As for what technical analysis tells
me of the natural gas market, it tells
me when a price is advantageous to
our customers. It also tells me when
it is not. But I will never know exactly
what is going to happen next. No one
does with absolute certainty. It only
tells you what is possible, and it is up
to each of us to know and identify
our risk, discuss this risk with our
management and boards, and develop
and maintain a strategy that protects
your system's rate payers as you would
any other potential risk that could
cause extreme harm to your system.
And if you have any doubt as to why
you are doing this, look out
your window.
THE SOURCE | SUMMER 2017, VOL. 9, ISSUE 4 17



Table of Contents for the Digital Edition of THE SOURCE - Summer 2017

First Person
APGA Events
Q&A: Representative Walden
A Conversation with an APGA Member
Look Out Your Window
Winning Insight into Gas Losses
Electrify, Electrify
Furnace Rule Update
Legislative Outlook
The Pipeline
Marketing Matters
At Last
THE SOURCE - Summer 2017 - bellyband1
THE SOURCE - Summer 2017 - bellyband2
THE SOURCE - Summer 2017 - cover1
THE SOURCE - Summer 2017 - cover2
THE SOURCE - Summer 2017 - 3
THE SOURCE - Summer 2017 - 4
THE SOURCE - Summer 2017 - 5
THE SOURCE - Summer 2017 - 6
THE SOURCE - Summer 2017 - 7
THE SOURCE - Summer 2017 - 8
THE SOURCE - Summer 2017 - First Person
THE SOURCE - Summer 2017 - APGA Events
THE SOURCE - Summer 2017 - 11
THE SOURCE - Summer 2017 - Q&A: Representative Walden
THE SOURCE - Summer 2017 - A Conversation with an APGA Member
THE SOURCE - Summer 2017 - 14
THE SOURCE - Summer 2017 - 15
THE SOURCE - Summer 2017 - Look Out Your Window
THE SOURCE - Summer 2017 - 17
THE SOURCE - Summer 2017 - Winning Insight into Gas Losses
THE SOURCE - Summer 2017 - 19
THE SOURCE - Summer 2017 - Electrify, Electrify
THE SOURCE - Summer 2017 - 21
THE SOURCE - Summer 2017 - Furnace Rule Update
THE SOURCE - Summer 2017 - Legislative Outlook
THE SOURCE - Summer 2017 - 24
THE SOURCE - Summer 2017 - 25
THE SOURCE - Summer 2017 - The Pipeline
THE SOURCE - Summer 2017 - Marketing Matters
THE SOURCE - Summer 2017 - 28
THE SOURCE - Summer 2017 - At Last
THE SOURCE - Summer 2017 - 30
THE SOURCE - Summer 2017 - cover3
THE SOURCE - Summer 2017 - cover4
THE SOURCE - Summer 2017 - outsert1
THE SOURCE - Summer 2017 - outsert2
THE SOURCE - Summer 2017 - outsert3
THE SOURCE - Summer 2017 - outsert4
THE SOURCE - Summer 2017 - outsert5
THE SOURCE - Summer 2017 - outsert6
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