Energy Policy:

Natural Gas Prices During the Winter of 1996-97

RCED-98-105R: Published: Mar 11, 1998. Publicly Released: Mar 11, 1998.

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Pursuant to a congressional request, GAO provided information on natural gas prices during the winter of 1996-1997 nationwide and for New Mexico, focusing on: (1) whether natural gas prices or small consumers have become more volatile than in the past; (2) the factors that contributed to natural gas volatility and price spikes, if any, during this period; and (3) the actions by the private sector and regulators to mitigate future natural gas price volatility and price spikes.

GAO noted that: (1) during the winter of 1996-1997, while nationwide monthly residential prices for natural gas were less volatile than they had been during the previous winter, in New Mexico the prices were more volatile; (2) during that winter, gas prices increased both nationwide and in New Mexico; (3) according to experts on the natural gas industry and Department of Energy officials, several factors contributed to the price increases; (4) nationwide the increases were largely attributed to cold weather and record low gas inventories; (5) in 1996, the expansion of pipeline capacity led to more New Mexico gas being transported eastward, thereby increasing prices in New Mexico; (6) several actions may mitigate future natural gas price volatility and price spikes; (6) in the United States, natural gas production and pipeline capacity have increased, and gas transportation and storage services have improved; (7) these improvements should enable natural gas suppliers to respond ore quickly to nationwide demand; (8) at the state level, regulators are allowing gas utilities to use futures contracts for natural gas; (9) to mitigate price volatility and price spikes, the Public Service Company of New Mexico Gas Services (PNM) has also: (a) made greater use of fixed-price contracts to purchase natural gas, thereby guaranteeing the prices it will later pay for that gas; (b) offered its customers a billing option to pay the same amount each month; (c) offered those customers that are residents or small businesses a choice of buying gas from a supplier other than PNM; and (d) shortened billing cycles to no more than 32 days; and (10) while these actions can help stabilize prices, they can, however, also lead to higher prices to the extent they increase the costs of supplying or purchasing natural gas.

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