Do We Have To Say It The Price Of Gas Is Going Up

June 5, 2002
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GRAND RAPIDS — April 1 marks the end of a 2-year Michigan Public Service Commission freeze on the prices that Consumers Energy charges for natural gas.

For the past year, the Consumers price has been $2.84 per thousand cubic feet (TCF) while spot gas prices and gas prices on the New York Mercantile Exchange (NYMX) at times rose to nearly thrice that level.

But that doesn’t mean gas bills will treble next month.

For one thing, NYMX and spot prices both have dropped substantially from their early hard-winter highs — all-time records just above $10 per TCF.

Thanks in part to moderating weather and the approach of spring, gas futures currently seem to be hovering in the range of $5 per TCF, far lower than last November, but still nearly double what they were in March of 1999.

Even so, April gas bills probably won’t be double what they were in February and March.

The market price of natural gas has made up slightly more than half the price paid by Consumers’ customers. Under the price freeze, residential customers have been paying $5.14 per TCF, comprised of $2.84 for the gas itself and $2.30 for Consumers Energy’s distribution services.

Thus if Consumers this week were paying $5 per TCF for natural gas, the total price to customers would be that sum plus $2.30 for distribution or $7.30 — a 40 percent increase.

That’s the low end of what Carl L. English, Consumers’ president and CEO for natural gas, predicted in a statement he released earlier this year. He indicated that the increase in customer gas bills would be 40 percent to 60 percent.

In the case of most households, English predicted, the average increase would be $20 to $30 a month.

“Obviously,” his statement said, “that frozen price has been a great benefit to Consumers Energy’s 1.6 million natural gas customers. Customers in other states haven’t had this protection and face bills up to 300 percent higher than a year ago.”

But with the freeze ended, he said, “we can’t avoid the economic law of supply and demand and its effects on prices.”

Even without the freeze ended, however, English said, “our customers still will be better off than in most other states.”

He cited two reasons for the fact that Consumers’ bills will not soar to such an extent.

First, Consumers won’t be paying the full market rate.

“The new rate will reflect only part of the market increase thanks to existing long-term supply contracts and Consumers Energy’s underground storage system.

“That system is one of the best in the nation and allows us to buy gas during summer months when prices are usually cheaper.”

Second, English said, “We will charge our customers only what we pay for gas, with no surcharges, increases or profit added.

“And I want to emphasize that we will not make up for our losses under the frozen price.”

The reasons for soaring gas prices, English said, are fairly complex.

He explained that two years ago producers were cutting back on exploration and drilling. Reportedly, prospecting for deposits of natural gas is a much less certain and, therefore, far more expensive process than oil exploration.

Whatever the case, English said gas supply began dropping sharply last year just as more and more of industry was turning to natural gas both as a raw material and as an energy source.

“Then record cold hit the nation last November and December sending demand — and prices — soaring.”

In the interim, he said, drilling for new gas has doubled. But, again, bringing new gas deposits on line is a slow process.

“In a year or two,” English’s statement said, “new supplies should be available and we could see prices easing.”

He cautioned, however, that right in this community’s back yard are two reasons — Southern Energy’s 1,000-megawatt gas-fired power plant under construction in Zeeland, and a similar plant to be constructed by Panda Energy International off Lake Michigan Drive in Tallmadge Township — that demand for natural gas is expected to remain very strong.

Moreover, at least 11 other similar gas-burning power generating plants have been proposed in Michigan. At the same time, Consumers itself has retrofitted some obsolescent power generation units to operate with natural gas for so-called “peaking power” service.

The bottom line, English said: "Gas prices might not return to the levels we saw in the 1990s.”

He said both commercial and household consumers can take steps on their own to hold down energy bills.

He also said the Michigan Public Service Commission has extended and expanded Consumers Energy’s gas customer choice program so that gas customers can shop among wholesalers just as electricity customers have begun doing.

Finally, English also stressed that for years the firm has operated programs to work closely with businesses and household customers to bring greater efficiency to their use of natural gas.

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