Two things are responsible for increases in natural gas prices....

1. the wholesale market for gas - price volatility
2. the weather - usage volatility

This combination has a drastic impact on your bill. Gas costs, which are a "dollar-for-dollar" pass through to the customer, make up approximately 80% of your bill. Your gas distribution company is not allowed to profit off of gas sales. If it costs the company $1 for gas, that $1 is passed directly on to you. This purchased gas adjustment is usually made quarterly. When the market price for gas becomes volatile, adjustments may be made more frequently. The good thing about this adjustment is that it can be made just as quickly when gas prices go down as when they go up.

The SCC does not regulate this price, the market does. The SCC does make sure that your gas company makes prudent gas purchases. In other words, it cannot go out and buy the most expensive gas it can find and then pass the cost along to you. In fact, the gas company must be able to show the SCC that it did everything possible to obtain gas from producers at the best possible market price. But, when market prices are high, the gas company's efforts also become more difficult.

As for regulatory control, the SCC only sets the rate for delivery services (the pipes in the ground and the operations of the company to deliver gas) which is the other 20% of your bill. That rate (around 35 cents/ccf) has not changed for several years. Even though the rate/ccf has not changed, it is tied to the amount of gas you use.

The SCC and gas companies periodically issue warnings when forecasts indicate an increase in the wholesale price for gas and/or lower-than-average expected temperatures. The following chart illustrates what happens when both phenomena occur:

SAMPLE MONTHLY GAS BILLS

Illustrative residential gas bill if 250 therms or ccf of gas is used (gas prices higher and temperatures colder) :

Illustrative residential gas bill using 150 therms or ccf (gas prices lower and temperatures warmer) :