SEMCO Proposes Higher Rate New 3 Year Freeze

June 17, 2002
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SEMCO Energy Gas Co. would increase its rate by 54 percent, freeze it for three years and again allow customers to switch to another utility if they can find a lower rate elsewhere, under a proposal pending before state regulators.

The increase from the current rate of $3.24 per thousand cubic feet (Mcf) to an estimated $4.99 per Mcf reflects the volatility the nation’s wholesale natural gas market has experienced for about a year, resulting in prices that spiked to record high levels last winter of $10 per Mcf to $11 per Mcf.

With its current three-year rate freeze set to expire next April, SEMCO customers will now feel that volatility, as the utility seeks to set a new rate that more accurately reflects the wholesale market.

The $4.99 per Mcf rate is what SEMCO estimates it will pay for natural gas in the years ahead, with the actual rate based on the wholesale price the day the utility receives approval for its plan and locks in a long-term contract with its supplier.

SEMCO in turn would then implement a new three-year rate freeze like one that’s been in effect since April 1, 1999, a move executives say is designed to protect customers from further price volatility. SEMCO, with 257,000 commercial and residential customers statewide, about 40,000 of them in the Holland-Zeeland area, estimates that the current price freeze saved customers $112 million in 2000 alone.

“While this proposed rate includes an increase in the amount customers will pay for natural gas it also provides a shield against the price spikes the market experienced earlier this year. Our current program protected SEMCO Energy customers from significant price increases then and we’d like the opportunity to continue to offer this type of price certainty for another three years,” SEMCO Energy Gas Co. President and Chief Executive Officer Jon Kosht said.

While he doesn’t like the idea of a sizable rate increase, Holland Area Chamber of Commerce President Chris Byrnes accepts that higher energy prices are a fact of life in the present era of volatility. A rate freeze at least gives businesses an ability to plan and budget for their future costs, Byrnes said.

“The increase won’t be easy to swallow, but knowing it’s locked in for a period of time gives you some comfort and you can plan for it,” Byrnes said.

If natural gas prices were to fall during the three-year life of the rate freeze, SEMCO customers are free to shop around for another utility and switch their gas supplier if they find a better rate elsewhere, utility spokesman Francis Leider said. SEMCO plans to continue a customer choice program implemented in 1999 with the rate freeze.

More than 4,000 former SEMCO customers are now enrolled in the program, Leider said.

“If they can find a better deal, we’ll just bring the gas in and service them and do all the rest,” he said. “Our program had worked in the past and we want to repeat it. We think it’s good for customers.”

SEMCO filed its rate request with the Michigan Public Service Commission on Sept. 7 and hopes to have a ruling by Nov. 30. If the MPSC denies the fixed-rate request, SEMCO would then switch back to a traditional gas cost recovery system as of April 1, 2002, that bases monthly rates on market prices.

As part of its filing with the MPSC, the Port Huron-based SEMCO offered an incentive clause that would require the company to reduce costs and share a portion of the savings with customers if its profits exceed pre-approved levels. 

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