Slide 24 of 27
Exposure to price volatility in the commodity market varies widely by type of consumer, but for the residential users, the impact of price spikes in the wholesale markets are damped as a result of delivery arrangements and billing practices.
The electric generators and large industrial consumers who often contract directly with marketers to obtain their gas supplies are subject to significant price variation and price risk. Any consumer that relies on short-term market purchases, or arrangements without fixed price terms, faces price risk.
For the residential consumer, the commodity price often is a relatively small proportion of the total unit cost of their gas service, thus prices to these consumers are unlikely to vary to the same degree as prices in the commodity market.
In addition, the contracting procedures by the local distribution companies can reduce the volatility of the commodity price. The exposure of the residential(and commercial) consumers to this price variation will increase if they participate in the retail unbundling programs without some program to mitigate or manage these price variations.