Fixed versus variable gas pricing: separate the index from winter volume

Identify what is fixed before choosing a label

For a gas product, ask whether the fixed element is the commodity, a regional component, a defined delivered supply amount or something else. For a variable product, ask which price source and delivery location apply and how the billing price is calculated. Neither label tells you how transportation, balancing, utility delivery or taxes are treated.

Ohio's gas supplier question list asks how changing prices are determined. Its role here is that narrow review prompt; it does not prescribe the right product for a commercial customer.

Use delivery-weighted exposure rather than a calendar average

List forecast quantities by the product's settlement period, keeping the billed unit consistent. A heating-dependent business may buy different quantities in different months, but use its records to establish that pattern rather than an assumed seasonal percentage. Record occupancy, production, weather assumptions and equipment changes beside the forecast. Fixed pricing does not remove consumption uncertainty.

Ask whether index changes reach the customer immediately or under another defined schedule. If the agreement names a benchmark, retain its exact publication, location, timing and fallback. A national price series can describe the market without being the contractual index. Never enter a benchmark price as the delivered invoice rate unless the documented formula supports that treatment.

Worked example: price stress where the quantity is concentrated

Hypothetical two-season supply model: the forecast is 6,000 MMBtu in winter and 2,000 MMBtu outside winter. An example fixed product is $5.00/MMBtu for the same commodity scope throughout. An example indexed product has assumed commodity prices of $4.00 in winter and $3.00 outside winter, plus a $0.40/MMBtu adder in both periods.

Fixed commodity cost is 8,000 × $5.00 = $40,000. The base indexed case is (6,000 × $4.40) + (2,000 × $3.40) = $33,200. If only the winter index changes to $7.00/MMBtu, indexed cost becomes (6,000 × $7.40) + (2,000 × $3.40) = $51,200. That is $18,000 above the indexed base case and $11,200 above the fixed case.

These are invented scenarios, not current prices, probabilities or achieved savings. The model holds usage constant. A separate test should change winter quantity if the business needs to assess joint price and consumption exposure. Delivery, taxes, balancing and differing contract terms are omitted rather than assumed identical without review.

Match the product to a documented operating decision

Ask who can approve an unexpectedly high invoice and how much reserve is available. For a fixed offer, test the effect of shutdown or increased use under any quantity provisions. For an indexed offer, decide who checks the settlement input and what prompts a new budget forecast. A later market decline does not retrospectively prove a fixed-price decision was improper; evaluate whether the chosen structure met the stated budget and operational objective.

Sources and limits

EIA's gas price-factor explanation provides market-driver context. It does not validate the invented seasonal prices. Use the gas pass-through review to complete the cost scope before comparing products.