BLACK HILLS ENERGY ANTICIPATES LOWER NATURAL GAS PRICES
THIS WINTER COMPARED TO LAST FOR IOWA CUSTOMERS
BLACK HILLS ENERGY ANTICIPATES LOWER NATURAL GAS PRICES
THIS WINTER COMPARED TO LAST FOR IOWA CUSTOMERS
Media Contacts:
Bob McKeon 402-943-9143
Janaan Harp 402-680-8928
Black Hills Media Line 866-243-9002
WEST DES MOINES, Iowa, April 27, 2009 — Black Hills Energy customers will benefit as the company takes advantage of the lowest natural gas prices in seven years by purchasing now some of the natural gas that customers will need next winter.
Under typical circumstances, Black Hills Energy begins buying natural gas needed to serve customers for the next winter during May. This year, however, as market conditions began to change dramatically in January, the company began locking in prices at the lower levels.
Since January, natural gas prices have continued to fall to the lowest levels since September 2002, and prices this month have dropped nearly 75 percent from last year’s July peak. By purchasing a portion of its customer needs now, Black Hills Energy is able to incorporate lower market prices into its natural gas portfolio mix for next winter.
“Black Hills Energy has used a portfolio purchasing strategy for many years and this approach is designed to safeguard customers against fluctuating prices,” said Trent Cozad, vice president of gas supply services for Black Hills Energy’s natural gas operations, which serve nearly 524,000 natural gas customers in Colorado, Iowa, Kansas and Nebraska. “We want our customers to enjoy the benefits of lower prices during the winter season when they need it most. And although our portfolio purchasing approach remains the same, we accelerated the timing by locking in fixed-price supplies for next winter earlier in order to take advantage of the lower market prices,” Cozad continued.
Black Hills Energy’s natural gas portfolio includes supplies that are priced using three methodologies including – fixed-price contracts, options, and current index or market price.
The natural gas Black Hills Energy is purchasing now will account for only a portion of supplies needed for winter. “There are many factors that influence the market price for natural gas,” said Cozad. “For that reason, we don’t want to purchase all our supplies in the same manner and at one time. Instead, we diversify our portfolio to manage price volatility and to ensure our flexibility to adapt to customer needs.”
The weak economy has contributed to softer market prices for natural gas. Demand is down, causing production to slow and leaving a surplus of natural gas in underground storage that recently reached levels 22.7 percent higher than the five-year average. According to Cozad, a stronger economy and a strong hurricane season, which can disrupt natural gas production in the Gulf Coast and transportation on pipelines that deliver supplies to customers in the Midwest, could cause prices to rise.
For now, though, market prices continue to be low. However, the fact today’s prices are 75 percent below the July 2008 high does not mean customer bills will decrease that much. “We believe the lower natural gas market prices will translate into lower customer bills this winter heating season as compared to last winter, but only time will tell how much,” Cozad said.
On average, natural gas accounts for approximately three-fourths of a customer’s monthly natural gas bill. Black Hills Energy does not profit from that portion of the bill because the price the company pays for natural gas is not marked up to customers.
The remaining one-fourth of the bill covers the company’s operating costs, including system growth, maintenance and improvements, and customer service support. This portion of the bill is regulated by each state’s public service commission and includes the monthly customer charge – a fee that stays the same each month – and the base rate – a fixed-per-therm rate that goes up or down depending on usage.
“It’s impossible to predict where future market prices will go and we are still in the early stages of purchasing supplies for next winter,” said Cozad. “But Black Hills Energy remains committed to providing customers with competitively priced natural gas service and will continue to use a diversified portfolio mix to decrease price volatility as much as possible.”
Black Hills Energy serves 149,500 natural gas customers in 130 Iowa communities. Black Hills Energy is part of Black Hills Corp. (NYSE: BKH) — a diversified energy company with a tradition of exemplary service and a vision to be the energy partner of choice — based in Rapid City, S.D. The company has other main offices in Golden, Colo., and Omaha, Neb. Black Hills Corp.’s regulated utilities serve 759,000 electric and natural gas utility customers in Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. The company’s non-regulated businesses generate wholesale electricity, produce natural gas, oil and coal, and market energy. Black Hills employees partner to produce results that improve life with energy. More information is available at www.blackhillscorp.com.
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