Wholesale Natural Gas Rates Rising

May 9, 2003
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New fees that SEMCO Energy Gas Co. can charge customers could represent just the beginning of higher monthly bills.

Increases in natural gas rates for customers of SEMCO, as well as other gas utilities, could occur in the months ahead if wholesale prices rise as projected.

Wholesale natural gas prices are presently “historically and unseasonably high” across the country, the result of low storage levels, according to the latest short-term energy outlook from the U.S. Department of Energy issued in April.

The annual average wholesale price for natural gas is expected to run about 34 percent higher in 2003 than in 2002, with the possibility of price spikes occurring next winter, the outlook projects.

If wholesale prices rise, SEMCO will seek to increase its retail rate accordingly from its present cap of $5.18 per thousand cubic feet, said Francis Leider, the Port Huron-based utility’s director of corporate communications.

“Frankly, the cost of gas is going to put a strain on everybody,” Leider said.

SEMCO customers for now will see an increase in the utility’s “customer charge” and a small decrease in the “distribution charge.” State regulators this month, in a negotiated settlement, authorized the fee adjustments. The net result is a $12.55 increase in what a typical residential customer will pay SEMCO annually for gas service.

SEMCO will use the additional revenue from the one fee change to offset the costs of past capital improvements, future system upgrades and rising operating costs.

“It’ll keep the distribution system alive and well and maintained and serviceable,” Leider said.

SEMCO Energy Gas Co. has about 270,000 residential and commercial natural gas customers in Michigan, with 40,000 of them in the Holland-Zeeland area.

The utility in November filed a $10.9 million request with the Michigan Public Service Commission to raise its customer charge, which covers fixed costs to maintain infrastructure, and the distribution charge that pays the cost to send gas through the system.

Regulators approved a settlement that increases SEMCO’s customer charge from $7 to $9.50 per month and a decrease in the distribution charge from $0.11502 to $0.10048 per hundred cubic feet of natural gas. The changes were effective May 3.

The settlement also allows SEMCO to revise depreciation rates and practices. It does not affect the cost of natural gas, which fluctuates constantly on the wholesale level and is expected to rise this year, forcing utilities to seek approval for corresponding retail rates increases for customers.

Aquila Networks, the supplier of natural gas in northwestern Ottawa County and most of Allegan County, with about 37,500 customers, expects to file a rate request in the coming weeks to adjust its retail rate, now capped at $4.70 per thousand cubic feet.

That rate is lower than the wholesale price Aquila had paid since January and, since wholesale prices are expected to remain high, Aquila will have to adjust retail rates accordingly, spokesman Paul Livernois said.

“We’re seeing that we need help in regards to recovering costs,” Livernois said.

State law only allows gas utilities to charge customers for natural gas what they pay on the wholesale level.                   

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