TriCities Gas Utility Offers 35 Percent Rate Cut

June 20, 2002
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Michigan Gas Utilities, the primary natural gas provider to the Tri-Cities area, would roll back its rate by 35 percent under a proposal pending before state regulators, erasing much of the increases implemented in the past year in response to dramatic price spikes at the wholesale level.

Decreased demand, driven in part by the struggling economy, and a significant increase in the supply of natural gas from a year ago enabled the Monroe-based MGU to propose a rate plan for 2002 of $4.45 per thousand cubic feet (Mcf).

MGU, after three rate increases since September 2000, now charges residential, commercial and industrial customers $6.84 per Mcf.

The $4.45 per Mcf, while markedly lower than the present rate, remains higher than the $3.81 per Mcf that MGU charged customers before wholesale prices began escalating a year ago in the wake of high demand and low supply. It reflects the wholesale price of natural gas that MGU expects to pay over the course of 2002. State law prohibits utilities from charging customers any more for natural gas than what they pay for it on the wholesale market.

The sizable rate decrease is a result of the stability that has returned to the market following a year of price volatility, MGU community relations director Paul Livernois said.

“It’s a good step in the right direction,” Livernois said. “We’re just elated it’s coming down the way it is. Anytime you can watch the price come down 35 percent, you can only sit there and go ‘hooray.’”

MGU, a division of Kansas City, Mo.-based Utilicorp United Inc., a global energy company, has more than 146,000 residential, commercial and industrial customers in southern and western Michigan. About 36,000 of them are in northwestern Ottawa County and portions of Muskegon and Allegan counties.

MGU’s rate plan, filed with the Michigan Public Service Commission on Sept. 28, includes a provision that would allow the gas utility to seek a rate adjustment each quarter during the year should wholesale prices spike again.

“If the price goes out of sight like it did, we can take a stab at where we think it will be,” Livernois said.

Unlike other natural gas suppliers in Michigan — MichCon, Consumers Energy Co. and SEMCO Energy — MGU did not enact a rate freeze in recent years or participate in a customer choice program that allows customers to choose their natural gas supplier. As a result, MGU was able to adjust rates as wholesale prices fluctuated and is now seeking to bring them back down, while MichCon and SEMCO are seeking regulatory approval to raise their rates after keeping them frozen as wholesale prices rose dramatically. Consumers Energy, meanwhile, is seeking permission to raise its distribution and access rates.

MGU raised its rate on Sept. 28, 2000, from $3.81 per Mcf to $5.30 per Mcf as wholesale prices last winter began to escalate. MGU implemented another increase on Jan. 1 to $5.95 per Mcf. That was followed by a third increase, to $6.84 per Mcf, on May 1.

MGU anticipates that the volatility experienced a year ago will not return this winter, Livernois said.

“That $4.445 (per Mcf) right now looks good,” he said.

The latest winter fuel outlook from the federal government supports that notion.

Wholesale prices nationally are expected to drop from a 6-month average of $5.78 last winter — when prices at one point spiked to $10 per Mcf for several days in late December and early January — to an average of $2.21 per Mcf this winter, according to the U.S. Department of Energy’s Energy Information Agency.

Residential heating bills in the Midwest, after peaking at an average of $9.49 per Mcf during the winter of 2000-2001, are forecast to come in at an average of $6.69 per Mcf for the coming winter, the agency said. That’s in line with an average price of $6.67 per Mcf in the winter of 1999-2000 and $6.29 per Mcf for 1998-1999.

Given that MGU is proposing a decrease, Livernois is optimistic that the state Public Service Commission will act quickly to approve the rate plan, which is targeted to go into effect Jan. 1.

“We would hope they’re going to look at this as a kind gesture and go ahead and say ‘we approve your numbers, go ahead,’” Livernois said.

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