Natural Gas Prices Staying High

December 27, 2004
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Natural gas prices are expected to be higher this winter than in recent years, as demand outpaces supply and creates new price spikes at the wholesale level.

The average wholesale cost of natural gas for 2004 is forecast to run nearly 18 percent higher than 2003 and stay at that level through 2005, according to the latest monthly short-term outlook from the U.S. Department of Energy.

A recent winter energy appraisal from the Michigan Public Service Commission anticipated that, based on prices charged by the state’s four largest natural gas utilities, prices should range 14 percent to 17 percent higher in Michigan this winter than last year.

“Gas prices have completely gone crazy,” said Tim Lubbers, director of marketing and corporate communications for SEMCO Energy Gas Co. “Prices have been very volatile.”

The higher wholesale prices will soon show via new gas cost recovery plans that natural gas utilities will file with state regulators for the 12-month period that begins in March 2005.

Michigan Consolidated Gas Co., Consumers Energy, SEMCO Energy and Aquila Networks are all expected to file gas cost recovery plans with the Michigan Public Service Commission by the end of the month. The plan will set retail prices charged residential and commercial customers for the 12-month period beginning April 1, 2005

The gas cost recovery plans, or GCR, establish caps that utilities can charge during the period and allows them to adjust prices up to that amount as wholesale rates fluctuate. Under state law, utilities can only charge for natural gas what they pay on the wholesale commodities market. Margins for utilities are generated through distribution and service rates.

MichCon, the state’s second largest gas utility, presently charges $6.62 per thousand cubic feet (Mcf) of natural gas, a price that should hold through the heating season, spokesman Len Singer said.

The utility ended 2003 at a GCR charge of $5.50 per Mcf, lowered it to $5.36 on Jan. 1, and then raised it to the present $6.62 mid-year. MichCon has 1.2 million residential and commercial customers statewide, including 187,000 in KentCounty, 55,000 in MuskegonCounty, and 22,000 in eastern OttawaCounty

The expectation is that wholesale natural gas prices will continue to rise as supply levels off and demand grows, Singer said.

A factor in driving that demand is the growth in recent years in the use of natural gas to fuel power plants around the nation that keeps demand up during the summer months, a period where wholesale prices in the past traditionally fell with demand, he said.

SEMCO Energy, which has about 40,000 customers in the Holland-Zeeland area and 255,000 statewide, presently charges $7.09 per Mcf. Consumers Energy, with 1.6 million customers statewide — 10,000 of them in Kent and Allegan counties — presently charges $6.14 per Mcf.

Aquila Networks, after ending 2003 at $6.17 per Mcf, now charges $7.50 per Mcf. Aquila Networks has more than 155,000 customers in Michigan, about 37,500 of them in northwest OttawaCounty around the GrandHaven-SpringLake area, as well as in AlleganCounty and a small portion of southern MuskegonCounty

Representatives from utilities say a variety of factors, wholesale prices among them, combine to decide the prices figured into their GCR plans.

A moderate start of the winter heating season would keep usage low and storage levels up, affecting how much gas the utilities would have to buy on the spot market or purchase during the off season to replenish storage levels, which in turn has an impact on the retail charges to customers to recover commodity costs.

A moderate or warm winter would help to ease high natural gas prices, said Paul Livernois, community relations director for Monroe-based Aquila Networks.

“It doesn’t break my heart or anybody else’s to see balmy weather, because it keeps the price spikes from popping up,” Livernois said.    

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