SEMCO Holds Line On Rates For Now

May 17, 2002
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SEMCO Energy Gas Co. will hold the line on rates for another year, saying it couldn’t settle on a higher price that it considered fair to customers.

What the future holds is another matter, however, as the utility now turns its attention to negotiating a new multi-year deal with a gas supplier that expires in 13 months. In an era of high natural gas prices on the wholesale level, that means SEMCO customers may still face higher rates in the future, spokesman Francis Leider said.

“If we can’t improve on things, we’re going to have to pass on the cost of the market to our customers,” Leider said.

The Port Huron-based SEMCO — which has more than 40,000 residential and commercial customers in the Holland-Zeeland area — said last week that for now, it will maintain a three-year rate freeze that runs through March 31, 2002, even as wholesale prices remain high.

“SEMCO Energy is committed to maintaining natural gas as a cost-effective tool for space heating and other uses,” company President and Chief Executive Officer Jon Kosht said.

SEMCO had considered asking the Michigan Public Service Commission for permission to alter a 1998 customer choice program that froze rates at $3.24 per thousand cubic feet (tcf). An increase — to around $5 per tcf— was weighed as a way to bring retail rates in line with wholesale natural gas prices that are more than double what customers now pay.

A three-year deal SEMCO signed in 1998 with a Canadian gas supplier has largely shielded customers from escalating wholesale prices. SEMCO decided against restructuring its rates after determining it “could not achieve a price favorable to customers,” the company said.

“We would have sought authority from the MPSC to restructure our current program only if it would have benefited our customers in the long term,” Kosht said.

SEMCO said a higher rate, if it were approved, would have cost its 262,000 customers statewide about $112 million in higher monthly gas bills.

SEMCO’s consideration of a rate increase came after Michigan Consolidated Gas Co. and Consumers Energy Co., the state’s largest gas utilities, sought similar increases. MichCon, the primary supplier of natural gas in West Michigan, wants to raise its rates from $2.95 to $5.17 per tcf. The request is pending before the MPSC.

Wholesale natural gas prices are expected to remain high through at least 2003, Leider said. SEMCO will seek to work out another multi-year deal with its supplier that keeps rates as low as possible, although Leider doubts the utility can maintain the present $3.24 per tcf.

“We’ll see what we can do,” Leider said.

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