Purchased Gas Adjustment (PGA) Explained

A purchased gas adjustment passes a gas utility’s actual cost of buying gas through to customers at cost, with no markup, so the rate can change without a rate case. In Indiana, NIPSCO’s March 2026 gas cost factor was $4.283 per dekatherm, built from estimated gas costs plus a true-up of past over- and under-collections.

What utility explainers usually leave out is that the factor is two things added together: a forecast of next quarter’s gas cost and a correction for last quarter’s miss. In that March factor, the correction added about 13 percent to the estimated cost, and about 14 percent across the three months. Utility pages tend to stop at “pass-through,” but state commissions publish the full calculation in their orders, so the factor can be rebuilt line by line, as it is below from the Indiana Utility Regulatory Commission’s February 25, 2026 order. This page is about that one line only. The delivery, customer and tax lines around it are in the natural gas bill guide, and orders quote dekatherms, which the gas units guide converts to the Ccf or therms on a bill.

Why gas rates are allowed to move between rate cases

A gas utility has two kinds of costs. The first is the delivery system: pipes, meters, crews, return on investment. Those are set in a general rate case, which happens every few years. The second is the gas itself. The commodity cost changes every month with market prices and weather, and a rate fixed for years would either bankrupt the utility in a price spike or overcharge customers when prices fall. The compromise, in most states, is a separate cost-of-gas clause.

The EIA describes the arrangement in a 2023 Today in Energy article. State public utility commissions regulate residential gas prices, and utilities generally cannot earn or lose money on gas commodity sales, so commissions require periodic rate adjustments through purchased gas adjustment charges on bills. The frequency varies by state and company from annual to monthly, and in volatile periods such as 2022 many commissions let utilities file for more frequent changes. After Winter Storm Uri in February 2021, some utilities asked commissions to recover the extraordinary costs over several years through additional charges.

The anatomy of a factor: NIPSCO, March to May 2026

On December 23, 2025, Northern Indiana Public Service Company filed to set its gas cost adjustment for March, April and May 2026. The commission held a hearing on February 11, 2026 and approved the factors on February 25. The order states the pieces in numbered findings, and they can be laid out as arithmetic.

The “factor” in the last column of the order is the cost to recover divided by the expected sales, which is why the implied-sales column can be computed. The cost to recover differs from the estimated net cost of gas because of three adjustments in finding 7 of the order. Here they are, with the signs the commission uses.

Check that the pieces fit: the three monthly estimates sum to $63,388,113, the three adjusted costs to $72,191,712, and the difference is $8,803,599. That is exactly the net of the three adjustments: $8,986,566 minus $38,649 minus $144,318 equals $8,803,599. The true-up added 13.9 percent to the cost the utility estimated for the three months, which spread across the implied 17.07 million dekatherms of sales is about $0.52 per dekatherm. A reader who sees $4.283 in March and assumes it is the forecast market price is missing roughly 50 cents of correction.

The correction is not the same size in every month. In dollars it adds $4,598,537 to March, $2,702,913 to April and $1,502,149 to May, which is 13.1, 14.0 and 16.6 percent of each month’s estimate. The share is highest in May, the month with the smallest sales: its implied volume is about a quarter of March’s, so a correction that is smaller in dollars is larger relative to what is being sold. A spring factor that rises from April to May therefore combines a higher estimated cost per dekatherm with a heavier correction.

Where the under-collection came from

The reconciliation period was September to November 2025. The order finds that the commodity and bad debt variance for those months was an under-collection of $22,637,954 from customers, meaning the utility paid more for gas than the earlier factor recovered. It reports that the main reason was the gap between forecast and actual gas prices, and tabulates the Daily Chicago citygate price against the forecast for each month.

Actual prices ran above the forecast in all three months, an average of 14.1 percent. A utility that buys gas at higher prices than it forecast collects too little from customers under the old factor, and the shortfall is booked as an under-collection. The commission did not charge it all at once. The order says the reconciliation amount is included “based on estimated sales percentages, in this GCA and the next three GCAs,” and only $5,352,593 of the $22,637,954 went into the March to May factor. The rest waits for later filings, which is the part of a PGA that most bill readers never see.

About three-quarters of the autumn 2025 shortfall had not yet reached customers when the order was signed. If wholesale prices stayed flat afterward, that remainder is the reason a customer could see the factor stay above the market for the rest of the year: the correction has a tail. If prices fell, later forecasts would be lower, but the same tail would still be arriving.

What it meant on a 10-dekatherm bill

The order also translates the factors into a customer’s gas cost for 10 dekatherms of use, about a winter month for a gas-heated home (the EIA’s average gas-heated household uses 11 Mcf in December and January, which is roughly 11.4 dekatherms at 1,037 Btu per cubic foot). The comparison is against the most recent bill and against a year earlier, and it excludes base rates and adjustment mechanisms.

Against the December 2025 bill, all three months are cheaper. Against a year earlier, March and May are more expensive by $3.23 and $6.53, and April is $0.94 cheaper. The true-up piece of the factor, about $0.52 per dekatherm on average, adds roughly $5.16 to a 10-dekatherm month. That is a small number beside the full gas cost of $40 to $44, and it is also an example of how a few dollars a month, collected from every customer, add up to the $8.8 million of net adjustments in the order. The practical point for a household is scale: the correction is a visible but modest slice of the bill, and a factor that moves a dollar or two between months is not by itself a sign that something is wrong.

The same mechanism pointing down: Fountaintown Gas, 2023

A correction can go the other way. In September 2023 the commission approved a gas cost adjustment for Fountaintown Gas Company, a small Indiana utility, for October to December 2023. For the reconciliation period of March to May 2023, the order finds that customers were over-charged by $113,120. As with NIPSCO, the commission does not hand all of it back at once: it directs that the amount be included “based on estimated sales percentages, in this GCA and the next three GCAs,” and $37,008 of it, about 33 percent, applies to this factor. To that the order adds an over-collection of $215,727 carried from earlier periods, so the total applied as a decrease is $37,008 plus $215,727, or $252,735. Refunds of $46,293 reduced the factor further.

The adjustment is $99,676 in each of the three months, exactly one-third of $299,028. Because winter months carry a bigger gas bill, the same dollar credit takes 68 percent off October, 37 percent off November and 25 percent off December. That is why Table 8 shows the October factor falling so far below the year-earlier figure and December falling least, even though nothing about the market made October special.

The October 2023 factor of $1.6266 was 79 percent below the previous October’s $7.7945. A swing that large does not mean wholesale gas fell 79 percent. The order shows why: the estimated net commodity cost for October 2023 was $145,722, and after applying the over-collection and refunds the cost to recover was $46,046, a cut of $99,676 or 68 percent from corrections alone. Across the three months the adjustments removed $299,028, which is the $252,735 variance plus the $46,293 of refunds. A PGA factor mixes a market forecast with the utility’s previous errors, in either direction. How much of the gap to the year-earlier factors came from the market and how much from the corrections is not something the order divides.

The guardrails regulators apply

A cost pass-through invites the question of who checks the costs. Both orders walk through the same statutory tests in Ind. Code 8-1-2-42(g), and each corresponds to a check a reader can use in any state.

• Sourcing at the lowest reasonable cost. The utility must show it made every reasonable effort to acquire gas at the lowest cost reasonably possible. NIPSCO testified that it runs a request-for-proposal process twice a year, holds firm transport contracts with seven interstate pipelines and uses storage. The commission found the requirement met.
• Regulated transport costs. Pipeline charges in the factor must be ones the pipeline has filed under a federal or state regulator’s procedures.
• An earnings test. A factor cannot be approved if it lets the utility earn more than its authorized return. For the 12 months ending September 30, 2025, NIPSCO’s actual net operating income was $226.5 million against a prorated authorized figure of $248.6 million, so it passed. Fountaintown, tested the same way in 2023, earned $152,615 against $619,056 authorized.
• A reasonableness test for estimates. The commission compares estimated with actual cost over a rolling 12 months. NIPSCO’s rolling average variance was 10.56 percent for the period ending November 30, 2025, against 13.38, 10.37 and 8.34 percent in the three earlier GCAs, and the commission found the estimating techniques sound.
• Interim status. Both orders approve the factors as interim rates subject to refund pending reconciliation, in case the utility earns an excess return.
• A volatility limit. Fountaintown’s order allows a monthly flex of the next month’s factor, with market purchases priced at NYMEX prices and the change in market price capped at $1.00 from the initial price in the proceeding.

None of these checks promises a low price. They are limits on how a utility can spend and what it can keep. A rise in the PGA that follows a rise in market prices can be fully compliant.

What two orders cannot tell you

Two Indiana orders are examples, not a map of the country. They come from one state’s statute, they cover a large investor-owned utility and a very small one, and both use dekatherms and a quarterly cycle with monthly factors. Other states differ on the length of the filing cycle, on whether the true-up is collected over one period or several, on who reviews the utility’s purchasing, and on what happens to interest on a balance. Some utilities also have a separate demand or capacity component, which the NIPSCO order shows as a demand variance next to the commodity variance. To read your own bill, use your utility’s tariff and your state commission’s filing for the current period, which is where the same four components appear for your company. If a number in a tariff does not match the arithmetic above, the likely cause is a state-specific rule, not an error in either document.

Why the bill lags the market

Three delays stack. The utility buys gas months ahead, so the price it pays reflects earlier contracts. The factor is set for a period in advance, on a forecast that may miss, as Table 3 shows. And the miss is collected afterward, sometimes over several filings, as Table 4 shows. The EIA’s 2023 article states the result: retail natural gas prices lag wholesale, with closer correlation only over longer periods. The Winter Fuels Outlook adds that some commissions set rates a year or more in advance of billing to reflect gas the utility bought over many months.

For a household, that has a practical consequence. A factor that rises in March tells you about costs the utility incurred in the previous autumn as much as it tells you about March’s market. The reverse holds when wholesale prices fall: a bill can stay high for a few months as an under-collection is repaid. To watch the wholesale side of the story, see the natural gas price page and the guide to the EIA storage report.

Seven questions to ask when the PGA line changes

1. Is the new factor for one month, a quarter or a year, and when does it end?
2. Is it in therms, Ccf, Mcf or dekatherms, and what heat content does the utility use?
3. How much of it is the estimated cost and how much is reconciliation of the past? Tariffs and orders usually show both.
4. Was the last period an over-collection or an under-collection, and how many later filings will carry the balance?
5. Did the commission approve it as final or as interim and subject to refund?
6. Does the comparison you are looking at include base rates, riders and taxes, or only the gas cost?
7. Does the commission test the utility’s estimates against actual costs, and what did the last test show?

Data and sources: Indiana Utility Regulatory Commission, Cause No. 43629 GCA 77, Order of the Commission, approved February 25, 2026 (Northern Indiana Public Service Company LLC; findings 3 to 10), checked October 23, 2026. IURC, Cause No. 37913 GCA 142, Order of the Commission, approved September 27, 2023 (Fountaintown Gas Company, Inc.), checked October 23, 2026. EIA, Today in Energy, “Changes in U.S. residential natural gas prices lag spot prices,” September 19, 2023, checked October 23, 2026. EIA, Winter Fuels Outlook 2026-27, released October 6, 2026, checked October 23, 2026 (retail natural gas prices lag wholesale prices because of utility regulation). Pennsylvania Public Utility Commission, purchased gas cost compilation, cached 2020-21 edition, checked October 23, 2026 (annual review plus quarterly steps, cited in the callout above as of that edition). Implied sales, net adjustments, percent changes and the 10 Dth cost are this page’s arithmetic on the order’s figures. Orders are for the utilities and periods named and do not describe any other utility.