Natural Gas Purchasing Strategies

The SmartPortfolio program is a complete approach for managing physical natural gas purchases and protecting against price volatility. SmartPortfolio provides a fixed price (the price includes the commodity and transportation, or basis, costs) for the volumes elected into the program. SmartPortfolio provides a time-diversified gas price that uses an algorithmic approach to managing long-term price risk. The purchasing strategies are similar to retirement savings plans such as a 401k or a target date fund. This may reduce exposure to extreme price fluctuations so your business has more budget certainty.

Program benefits include:

• Minimize Volatility & Risk: SmartPortfolio's comprehensive approach manages your total usage through a combination of floating and time-diversified locked purchases. This strategy helps protect your business from market highs while providing the opportunity to capture market lows.
  
• Effortless Automation: Automated purchasing manages risk while you focus on your core business. 
  
• Flexible Strategies: We’ll work with you to evolve your strategy as you evolve your business. Flexible contract terms, simple invoicing, online budget reporting and customized back-test scenarios help you manage your natural gas supply. We recognize that strategies change, so you can opt-out of the program at any time, retaining any purchases already made by the program.

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Our Managed Portfolio Service (MPS) is a targeted approach that helps customers manage their basis (non-commodity costs associated with gas delivery) price risk through modified-cost averaging and pooling. Basis can vary widely based on weather, location and supply and demand factors. The objective of MPS is to proactively manage basis risk through a structured, algorithmic approach. MPS uses time diversification to manage the basis component of a customer’s natural gas supply.

Customers have three options:

1. Management of total usage: This allows the program to take care of any changes in usage, even when usage exceeds monthly nominations.

2. Management of specific volumes: This allows the customer flexibility to decide what volume will be run through the program and what volume they will manage on their own.

3. Management of incremental purchases: This is for customers who want to lock in basis costs. MPS can help manage incremental costs. 

Program benefits include:

• Proactive basis management 
• Active management of customer needs to reduce cost and basis risk
• Eliminates cash-outs
• Access to transparent online reports
• Location-specific programs such as Illinois Storage and Wisconsin Transportation 

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For over 20 years, Constellation’s customers have been utilizing the Minimize Volatile Pricing (MVP) program to manage market risks. The MVP program focuses on the commodity component—the greatest portion of a customer’s total gas cost—to achieve a more stable price. This program uses time diversification principles to make smaller purchases over time to reduce volatility and proactively manage price risk.

The objective of MVP is not to beat market prices, but rather to make strategic purchases to avoid its extremes. Instead of locking in natural gas costs all on one day, customers can take advantage of opportunities to reduce uncertainty over time.

Program benefits include:

• Proactively manage commodity exposure to avoid market price extremes 
• Price transparency
• Access to online purchase reporting
• Makes smaller natural gas buys over time to take advantage of market opportunities 
• Reduces guesswork and anxiety over making buying decisions at the right time

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• Fixed Price
  • Lock in a price at a single point in time for the term
• Float Price
  • Let your price float with the market to take advantage of market movements
• Managed Price
  • Layer in a combination of fixing and floating to design your own risk management portfolio