Home > Our Work & About Us > Case Studies

Case Studies

Gelber & Associates represents clients ranging from public utility commissions to electric and gas utilities as well as agribusiness and real estate companies - clients who need a full range of energy commodity risk strategies. Our solutions and product offerings go well beyond simple gas price risk management.

Outlined below are a number of actual case studies - listed by client type:

• Local Distribution Company
• Public Utility Commission
• Merchant Power Generator
• Fortune 500 Industrial Manufacturer
• Real Estate Investment Trust

The LDC's Challenge

As a result of ratepayer concerns, the PUC ordered the case study LDC to implement a prudent methodology for natural gas price volatility mitigation and price stabilization. The PUC gave no guidance as to how volatility mitigation was to be accomplished. The LDC felt as though they were at risk and, more importantly, in a potential lose-lose situation. For example, if the LDC 'did nothing' and continued to buy at first of the month index prices its purchasing practices could be judged imprudent by the PUC. Alternatively, if the LDC bought at forward prices (to hedge price volatility and lock in future prices) and it turned out that their effective prices were above market (pursuant to a purchase gas adjustment PGA review), their purchasing strategy would be deemed imprudent as well.

The Gelber Solution:

Gelber provided the LDC with a procurement methodology customized to fit the unique situation of the LDC and the requirements of the PUC. The Methodology utilizes Gelber's proprietary Least Cost Purchasing Practices^tm. The market approach was presented for the PUC's understanding and served to educate the PUC in the prudent and reasonable methods to approach and engage the volatile natural gas market. The LDC and the PUC eventually reached agreement on the standards for review prudence within the PGA process. This agreement reduced the probability of a PGA disallowance. The ratepayers are now insulated from price volatility and the PUC has mitigated a potential flashpoint for public debate, providing the state economy with welcomed price risk management direction.

top of page

The PUC's Challenge:

A public utility commission was faced with increasing pressure from the state's ratepayers to develop and implement policies and orders that would protect the ratepayers from a high and volatile rate environment. The more distinct and acute challenge for our client was their need to strike balance in terms of instituting risk management protocols while retaining incentives and mechanisms to reduce overall costs to the rate base.

The Gelber Solution:

Gelber provided the public utility commission with the Annual Natural Gas Forecast and a detailed plan and narrative with respect to the various options available for risk management of natural gas, including their various features, attributes, advantages and disadvantages. The documentation and planning was placed on the PUC's docket as one of a number of issues to be considered in formulating the future policies for the state. Ultimately, Gelber's recommended course of action was supported by other opinions from both public advocacy groups and the local distribution companies and utilities within the state. The resulting final order of the public utility commission reflected the most salient elements of Gelber's recommendations.

top of page

The Generator's Challenge:

Deregulation of the electricity markets and the increasing proliferation of natural gas fired generation has caused regional wholesale power prices to track very closely with the NYMEX price of natural gas. The Generator needed to find a way to stay current and ahead of natural gas price changes in order to optimize generation value and reduce their Value at Risk in order to meet lender's requirements. The Generator required additional resources to effectively manage natural gas price changes and volatility. The Gelber Solution:

Gelber's Least Cost Purchasing Practices^tm provides for the Annual Natural Gas Industry Review and Price Forecast as well as on-going communication and information exchange. The results were greater success for the generator in arranging their natural gas purchases for both longer- term strategic positioning as well as shorter-term profit opportunities. Gelber then initiated a daily dialogue that included the transfer of market information, trading opportunities, technical analysis and market opinion. Our communications approach utilized voice conversation as well as web-based instant messaging capabilities. The results were greater profitability in the electricity generation businesses and reduction of value at risk. The Generator also met its "for profit" annual trading goal within the first three months of generation activity.

top of page

The Manufacturer's Challenge:

Natural gas price volatility and price increases had led to lost profit margin as well as management frustration with the procurement staffs' inability to effectively find a method to manage the market volatility. The company would be over-hedged in a falling market and under-hedged in a rising market. When extreme price movements occurred in December 2000, the high price of natural gas resulted in prohibitively high fuel costs and nearly caused the manufacturer to file for bankruptcy. The Gelber Solution:

Gelber's Least Cost Purchasing Practices^tm was 'up-sourced' to the client. In addition to the Annual Natural Gas Industry Review and Price Forecast and our Market Advisory Alerts, Gelber led a series of management facilitation sessions where the goals and objectives of management were integrated into a Strategic Plan. Gelber was then utilized in an on-going collaborative relationship, supporting the efforts of the procurement group, therefore becoming an integral and important member of the risk management and procurement decision-making process. Procurement occurs within the guidelines of an Annual Strategic Plan, and price and net revenue volatility has been reduced by over 50%. The result has been reduced exposure to market price risk and a more manageable and controllable environment.

top of page

The REIT's Challenge:

The five-fold increase in natural gas prices experienced during 2000 resulted in a significant reduction in net profits for the REIT industry. Many REIT's lacked the resident expertise to manage the REIT's risks of a volatile natural gas market or regional price issues related to location as 'basis' and distribution. The impact of rising natural gas prices was magnified by the deregulation of electric power. The Gelber Solution:

Gelber's Least Cost Purchasing Practices^tm were introduced and modified to fit the unique 'institutional needs' and consumption patterns of the REIT. The REIT was in the aggregate a large user of natural gas and electricity in its common spaces and master metered properties. The preponderance of properties used too little energy to justify significant resource allocation on the issue at either the corporate or local level. Gelber was effective at implementing its products and expertise, which have proven to be effective for larger industrial and utility users, such that opportunities to reduce energy rates identified, costs were reduced, volatility was mitigated and favorable contracts were put in place in a competitive market.

top of page

Printable View | Return to Top