Supplier Seeking Gas Rate Hike

December 17, 2004
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LANSING — Citing rising operating costs, SEMCO Energy Gas Co. is asking state regulators for an $11.6 million rate increase.

In a rate case filed this month with the Michigan Public Service Commission, SEMCO Energy seeks approval to raise distribution and service rates that customers pay on top of the cost for the natural gas they use.

The Port Huron-based utility — which has about 40,000 customers in the Holland-Zeeland area and 255,000 statewide — wants to increase the monthly service charge for residential customers from $9.50 to $12.

It also wants to increase its monthly distribution charge from $0.11018 to $0.12297 per hundred cubic feet of natural gas used.

SEMCO proposes similar rate increases for business customers.

The rate case reflects the rising cost of doing business for SEMCO Energy.

So says Eugene Dubay, the firm’s senior vice president and COO.

We are sensitive to the impact of rate adjustments on our customers and we strive to keep our operating costs as low as possible,” Dubay said.

“Even though we try to operate efficiently, we have experienced cost increases for health care, liability and casualty insurance, and other costs largely beyond our control.”

SEMCO Energy last received a rate increase in May 2003 for its distribution and service charges. The proposed new charges, which would raise the average residential bill by $3.47 per month, cover the cost of delivering natural gas to customers and business expenses, including investments in gas distribution equipment and other business expenses such as health care, insurance and regulation compliance costs.

“It’s all of the things it takes for SEMCO to runs its business,” said Tim Lubbers, the utility’s director of marketing and corporate communications.

That includes SEMCO’s profit margin.

Under state law, utilities can only charge customers for natural gas what they pay on the wholesale market.

Any margin comes from the utility’s charges to deliver the natural gas to customers.

The utility, in its regulatory filing, said the current rates do not reflect “recent significant cost increases” and cited the defection of large commercial and industrial customers to alternative natural gas suppliers as contributing to a projected revenue shortfall.

In its filing with the Michigan Public Service Commission, SEMCO Energy stated that its current rates “preclude the company from earning a reasonable return on its investment.”

“This proposed rate increase,” according to the document, “is required in order for the company to maintain adequate system reliability and safety standards, and to provide SEMCO Gas with just and reasonable rates that will allow it a reasonable opportunity to earn the return to which it is entitled by law.”

The commission in late September granted Michigan Consolidated Gas Co. — which has 1.2 million natural gas customers statewide — an interim rate increase of $35.3 million as regulators continue to review a requested overall increase of $193.6 million in transportation, distribution and storage rates.

A decision from the state on MichCon’s full request is expected in early 2005.    

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