Natural gas suppliers use historical monthly or daily volume to set fixed components in their pricing and any variance above or below the contracted amount is settled in the market (swing). The tolerance levels can range from 0% to 100%. The 0% requirement is defined as any volume variance from the contracted volume that is settled either in the daily or monthly market. The 10% requirement holds the fixed price component within a 10% volume variance in either direction of the contracted amount. The 100% requirement on the other hand is NO price change regardless of volume.
The fixed price includes all charges and remains constant throughout the term of the service agreement. The risk is low and consumers appreciate the budget certainty. The natural gas supplier shares the risk by taking a position on future costs of gas. Prices can fluctuate with tolerance levels that are less than 100%.
The NYMEX plus fixed basis fluctuates monthly and uses the NYMEX close of natural gas for the day or month as a base line plus a fixed basis. The basis is the price between NYMEX pricing point (Henry Hub) and utility city gate. This is for customers who anticipate a market decline and have the ability to alter usage as the market dictates. The risk is moderate to high because pricing fluctuates with the market along with the balance and/or 'Swing' amounts and there is no certainty.