MichCon Rate Hike Out Of Gas

June 5, 2002
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GRAND RAPIDS — Pressure from business and consumer advocates has prompted Michigan Consolidated Gas Co. to drop a proposal to boost its rates next month, nine months ahead of the scheduled lifting of a rate cap.

MichCon cited “insufficient support from interested parties” in withdrawing its request to the Michigan Public Service Commission that sought a 75 percent increase in its natural gas rate, from $2.95 to $5.17 per cubic foot.

“They saw the writing on the wall and made the decision to withdraw it rather than have it rejected,” said Barry Cargill, vice president of government relations for the Small Business Association of Michigan.

The proposal’s demise, however, doesn’t mean MichCon customer won’t see substantially higher natural gas rates at the end of this year, particularly with wholesale prices expected to remain high.

MichCon says it will now focus on preparing a new plan to submit this summer to the MPSC that will establish new natural gas rates to take effect after Jan. 1, 2002, after a customer choice program that capped rates expires. MichCon will base the new rates “upon market-price forecasts.”

MichCon has about 220,000 residential and commercial customers in West Michigan and more than 1.2 million statewide.

The Detroit-based utility filed a request with state regulators late last year to end the choice program and rate cap nine months early and implement new rates as of April 1 that were in line with wholesale natural gas prices that have more than tripled in the past two years.

The utility, in its filing with the MPSC, claimed the competition that was supposed to result from capped rates never transpired because of the escalating wholesale prices. Setting new retail rates that more accurately reflected the wholesale market would help convince new competitors to enter the market and, at least in theory, drive prices back down.

Business and consumer groups didn’t buy that reasoning and urged state regulators to hold MichCon to the price caps the utility agreed to implement in 1998.

“If their (wholesale) price had gone down, would they have ever proposed a decrease? Probably not,” Cargill said.

Faced with such opposition, MichCon opted to withdraw its application and continue the existing choice program until it expires at the end of the year.

“While we believe our plan to provide customers a gradual transition back to prevailing natural gas market prices had many merits, participants in the MPSC proceedings apparently believe the benefits of the current fixed price outweigh the potential negatives of a January 2002 price jump,” MichCon President and CEO Stephen Ewing said.

The utility also says that under existing agreements it has with gas suppliers, it expects to meets it sales commitments to customers “with limited or no adverse financial effects.” 

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