Natural Gas Utilities Seeking Hikes

January 3, 2005
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Rising wholesale prices led the three main natural gas utilities serving West Michigan to propose large increase in what they charge customers for natural gas.

Michigan Consolidated Gas Co. is asking for a more than 20 percent increase, while SEMCO Energy Gas Co. is seeking an 18 percent increase in its charge. Aquila Networks, which has had the highest charge in the state during 2004, submitted a gas cost recovery plan to state regulators late last month that asks for an 11 percent price increase.

The plans cover a 12-month period beginning April 1, 2005.

The sharp increases reflect what the utilities expect to pay during the period for natural gas at the wholesale level, where prices spiked again during 2004 as growth in the domestic demand for natural gas outpaced supply.

“It is a commodity and the price of the commodity is rising,” MichCon spokesman Len Singer said.

MichCon’s gas cost recovery plan filed with state regulators Dec. 22 proposes a charge of $7.99 per thousand cubic foot (Mcf) of natural gas, up 20.6 from the current $6.62 per Mcf.

Utilities’ gas cost recovery plans, or GCR, set a cap that utilities can charge customers during a 12-month period and allows them to adjust prices during the year 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’s proposed $7.99 per Mcf charge represents the average wholesale cost the utility expects to pay for natural gas from April 2005 to March 2006, Singer said.

The rise in wholesale prices stem in part from a growing use of natural gas to generate electricity during the summer cooling months when electric demand peaks. With an increase in gas-fired power plants across the nation, natural gas utilities no longer can count on low wholesale prices in the summer months when they buy large quantities of natural gas to replenish stored reserves that are tapped in the winter.

“Now with the power plants, we don’t see as much of a drop off” in wholesale prices during the summer, said Vic Borra, manager of gas supply and planning for MichCon.

MichCon’s present rate of $6.62 per Mcf of natural gas should hold through the winter heating season without an adjustment, Singer said. He expects the utility will raise the commodity charge all the way to the $7.99 cap on April 1 for commercial and residential customers.

The utility ended 2003 at a GCR charge of $5.50 per Mcf, lowered it to $5.36 on Jan. 1, 2004, and then raised it to the present $6.62 at mid-year in 2004.

MichCon is the state’s second largest gas utility, with 1.2 million residential and commercial customers statewide, including 187,000 in KentCounty, 55,000 in MuskegonCounty, and 22,000 in eastern OttawaCounty

SEMCO Energy, which has about 40,000 customers in the Holland-Zeeland area and 255,000 statewide, submitted a GCR to the Public Service Commission on Dec. 29 that would raise natural gas charges from the current $6.14 per Mcf to $8.41 per Mcf.

Aquila Networks is asking for approval to raise its natural gas charge as of April 1 from the current $7.50 per Mcf to $8.33 per Mcf.

Aquila Networks has about 37,500 customers in northwest Ottawa County as well as in Allegan County and a small portion of southern Muskegon County, and 159,000 customers statewide.

Barring a mild winter that would stem demand and bring wholesale prices down, utilities say high natural gas prices appear as the norm for the foreseeable future.

“Don’t look for them to come down anytime soon would be the best way to put it,” said Paul Livernois, community relations manager for the Monroe-based Aquila.    

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