SEMCO Eyes Rate Hike For Early Next Spring

June 4, 2002
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SEMCO Energy Gas Co. would implement a two-pronged rate increase next spring that would increase the price that customers pay for natural gas by nearly 18 percent.

Under a new, 1-year rate plan proposed to state regulators, the Port Huron-based utility would implement a scant 1 percent rate increase in April, after its current three-year price freeze expires, and then add on a larger increase in May.

The plan, if accepted by the Michigan Public Service Commission, would take SEMCO's rates from the current $3.24 per thousand cubic feet (Mcf) to $3.82 per Mcf, a 17.9 percent increase, through March 31, 2003. SEMCO's monthly distribution and access fees would remain unchanged.

The new rate plan represents a significant reduction in the size that SEMCO initially sought to implement. That rate plan, filed on the heels of intense market volatility last winter that saw wholesale prices spike as high as $10 to $11 per Mcf, proposed a 54 percent increase in the retail price, to $4.99 per Mcf.

As the wholesale market stabilized in the wake of lower demand brought on with the recession, coupled with increased gas production nationwide, the MPSC resisted SEMCO's initial plan, which included 3-year rate freeze designed to protect consumers from further volatility and price spikes.

The utility withdrew the plan back in November and indicated it would come back before the end of the year with a 1-year proposal, which it filed with the MPSC on Dec. 27.

The proposed rate will cover what SEMCO expects to pay on the wholesale level between April 2002 and March 2003, barring any return of market volatility, utility spokesman Francis Leider said. The plan represents the desire of regulators to return to a system where monthly rates are based on wholesale market conditions.

"What they said to us was, 'We're just going to let it fly. Year to year, whatever you pay is what the customers will pay,'" Leider said.

State law requires utilities to charge no more for natural gas than what they pay for it on the wholesale market.

SEMCO has more than 267,000 residential, commercial and industrial customers statewide, about 40,000 of them in the Holland-Zeeland area.

Depending on how wholesale prices actually pan out, SEMCO will return to the MPSC in March 2003 with a proposal to either recover or repay the difference between what it pays for natural gas and what consumers pay. If the wholesale market goes above expectations, SEMCO will seek to recoup the difference through a surcharge on customers' bills. If wholesale prices are lower than expected, SEMCO would have to credit customers the difference.           

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