Natural Gas Rates Headed Up

July 3, 2003
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Temporary rate increases granted to the three natural gas utilities serving most of West Michigan reflect the high wholesale prices that are expected to rise further through the year.

The Michigan Public Service Commission’s June 27 order allowed MichCon, SEMCO Gas Co., and Aquila Networks to raise the rates they charge customers to recover the cost of natural gas purchased last winter. The order creates new temporary retail rates “that more realistically reflect market costs for natural gas,” regulators said.

And forecasts for the wholesale market point to higher natural gas bills for consumers and businesses for the rest of 2003 and into 2004, if reserves remain low.

“Based on natural gas prices in the marketplace, it appears that natural gas prices will be considerably higher than they were at the outset of any previous heating season,” Public Service Commission Chairman Laura Chappelle said.

Under the Public Service Commission’s approval, MichCon’s gas rate rose from $4.575 per thousand cubic feet (Mcf) to $4.97 per Mcf. The Detroit-based MichCon serves about 287,000 customers in Kent, eastern Ottawa and Muskegon counties.

SEMCO Energy, which has more than 40,000 customers in the Holland-Zeeland area, received approval to temporarily raise rates on residential and business customers from $5.18 per Mcf to $6.035 per Mcf.

Aquila Networks, formerly Michigan Gas Utilities, was granted permission to raise its rate from $4.70 per Mcf to $6.08 per Mcf. The Kansas City-based Aquila Networks has more than 155,000 residential, commercial and industrial natural gas customers in Michigan, about 37,500 of them in northwest Ottawa County around the Grand Haven-Spring Lake area, as well as in Allegan County and a small portion of southern Muskegon County.

The temporary increases should help to somewhat mitigate future price adjustments in 2004 by utilities to recover the cost to purchase gas during this coming winter.

“In all three cases, the commission approved the revised factors to prevent the companies from delaying recovery of increased gas costs that would burden their customers by moving these additional costs, plus interest, into 2004,” the MPSC stated.

Looking ahead, the MPSC stated that residential and business natural gas customers can expect considerably higher prices this winter and should start conserving now.

The problem stems from the growing demand for natural gas, the preferred fuel for just about all of the new power plants built in the U.S. today, that has left reserves low and current prices unseasonably high.

A hot summer that drives up the demand for electricity will result in less natural gas being available for utilities to put in storage at a time when the wholesale cost is lowest. Under that scenario, gas utilities would enter the winter heating season with low reserves and have to buy more natural gas when the wholesale price is up.

Driving the situation is the inability to expand natural gas production and exploration at the same pace as demand, said Paul Livernois, community relations director for the Monroe-based Aquila Networks.

“It was only a matter of time before we got to see what we’re looking at today,” Livernois said.

As of the end of May, gas reserves in the U.S. were down 38 percent from a year ago and 28 percent below the five-year average, according to the U.S. Department of Energy’s monthly short-term energy outlook issued in June.

The decreased reserves will push wholesale prices up for the year to an average of $5.30 per Mcf, or about $2.40 per Mcf higher than the 2002 annual average price, the outlook states. Prices in 2004 are projected to “ease only moderately, as supplies are expected to remain tight,” the outlook stated.               

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