NGI's Daily Gas Price Index 
Breaking News : posted Nov 20, 1:53 PM
Reliant Unveils Natural Gas Index, Risk Management Tools 
Reliant Energy Wholesale Group unveiled a new natural gas index and associated financial risk management instrument, designed to enable natural gas traders to better hedge risk for their companies and portfolio clients during the heating season. The Weather-Sensitive Gas Load Index (WGLI) measures current and forecasted residential and commercial natural gas consumption. To work with the index, Reliant has developed a financial instrument tailored for gas traders, called the WGLI Swap. 
WGLI is based on the weighted sum of heating-degree-days in four areas: Chicago, the Dallas-Fort Worth Metroplex, Philadelphia and Sacramento. A heating-degree-day is recorded when the average temperature falls below 65 degrees Fahrenheit, and it is assumed that customers of natural gas companies then begin using their residential furnaces and commercial heating systems. 
"The index captures more than 90% of the variation in residential and commercial gas load," said Pat Strange, senior vice president of Reliant's Gas Trading. "Using this index, weather forecasts can be translated immediately into residential and commercial consumption forecasts. Inputs to the index formula are publicly available, and the index is relatively simple to calculate. Calculations can be made as needed on a weekly, monthly or seasonal basis." 
Regional gas load indices are also available for the Mid-Atlantic and Great Lakes regions. 
WGLI is set to equal 100 for a typical week in the heating season (a typical week represents the weekly average for the last 10 heating seasons). For example, a WGLI value of 110 indicates residential and commercial gas usage is 10% higher than a typical week; conversely, a WGLI of 90 indicates that residential and commercial gas consumption is 10% lower. 
Based on WGLI, Reliant designed a standardized financial derivative, the weekly WGLI Swap. The contract is designed to mirror weekly changes in residential and commercial gas load. Beginning with the upcoming heating season, Reliant and other corporations said they are committed to making markets in WGLI and Mid-Atlantic and Great Lakes regional gas load indices weekly Swaps. The WGLI swaps may be used to enhance the risk/reward profile of a trader's gas portfolio, and traders can use it to hedge volume risks embedded in their trading positions. 
For details of WGLI and the terms of a WGLI weekly swaps contract, contact Jeff Wang, Reliant's product development manager for weather risk management, at (713) 207-1184 or at jwang@reliant.com <mailto:jwang@reliant.com>.