SEMCO Will Link New Gas Rate With New 3Year Freeze

June 5, 2002
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SEMCO Energy Gas Co., the primary supplier of natural gas in Ottawa and Allegan counties, will seek to implement another three-year rate freeze when it submits a new rate proposal to state regulators later this year.

While SEMCO’s rate proposal will result in customers’ annual gas bills rising by as much as 50 percent a year, the Port Huron-based utility wants to lock in the new retail price for three years to negate the affects of continued volatility in the wholesale natural gas market.

Prices at the wholesale level are more than twice what they were a year ago and the market is expected to remain volatile, although some price moderation is expected. SEMCO customers, however, have not felt the higher costs because of a long-term contract the utility has with a Canadian supplier, TransCanada Gas Services in Calgary, Alberta.

As the supplier deal comes up for renewal, and with the existing three-year retail rate freeze due to expire in less than 11 months, SEMCO is preparing to file a new rate request some time this year with the Michigan Public Service Commission. SEMCO presently charges residential and small commercial customers $3.24 per thousand cubic foot of gas and expects to seek approval of a significantly higher rate that would reflect the wholesale price it secures in negotiations on a long-term supply contract.

SEMCO estimates that the current long-term supplier contract and retail price freeze saved customers $70 million in 2000 and will save them up to $200 million in 2001. SEMCO has about 367,000 commercial and residential customers in Michigan, with more than 40,000 in the Holland-Zeeland area.

Setting a new rate and implementing a new three-year freeze is the “most significant issue” facing the utility, SEMCO Chairman and Chief Executive Officer William Johnson said.

The new rate will come in “probably at a higher price than $3.24, but clearly at an advantageous price for our customers that will help them over another three-year period to be protected from the swings that may occur in the pricing on natural gas,” Johnson told brokerage analysts during a conference call last week to discuss the utility’s first quarter financial results.

The utility at one point this year considered asking state regulators for permission to end the current rate freeze early and implement rates that more accurately reflected the wholesale market, but dropped the idea after it was unable to negotiate a favorable contract with its supplier.

Believing the present volatility in the wholesale market won’t subside anytime soon, SEMCO wants to couple the new rate with a three-year freeze, rather than set a new rate annually.

“If we had a belief that the market (price) was going to be dropping, we’d say ‘yeah, we’ll take it,’” SEMCO spokesman Francis Leider said. “(But) it’s going to creep up, if not swing drastically up.”

Natural Gas customers elsewhere in Michigan, meanwhile, are already paying higher prices.

Consumers Energy Co., with its rate freeze expiring on April 30, upped its rates from $2.84 to $4.87 per thousand cubic feet for its May bills.

Consumers, which has 6,000 customers in eastern Kent County, and 1.6 million statewide, will set a new rate each month based on wholesale market conditions, spokesman Jeff Holyfield said.

The state’s other gas utility, MichCon, which serves a large portion of West Michigan, is locked into its present rate, $2.95 per tcf, until the end of the year. 

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