Gas Transmission Rate Hikes Sought

December 20, 2002
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LANSING — SEMCO Energy Gas Co., in a request similar to one that’s been partially approved for a competitor, is asking state regulators for a $10.9 million increase in what customers pay annually to receive natural gas.

The Port Huron-based SEMCO filed a request late last month with the Michigan Public Service Commission that seeks to restructure rate classes and increase natural gas transportation and distribution charges.

SEMCO contends the present transportation and distribution rates, established five years ago, are insufficient to cover rising operating costs.

Existing rates “preclude the company from earning a reasonable return on investment,” SEMCO stated in a Nov. 21 filing with the MPSC.

“This proposed rate increase 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 filing stated.

Rising pension and heath care costs and $120 million in system improvements made since the utility’s last rate increase in October 1997 created the need for the new request, said Eugene Dubay, senior vice president and chief operating officer for SEMCO Gas.

SEMCO Gas has more than 40,000 residential and commercial customers in the Holland-Zeeland area, the utility’s second-largest market.

The MPSC is scheduled to begin hearing the rate increase request next year.

SEMCO’s request is similar to a proposal from Aquila Networks that recently gained partial backing from regulators.

Aquila received approval to raise its monthly distribution charge 30 percent — from $1.25 per Mcf to $1.63 per Mcf — generating $8.2 million in new revenue annually.

The interim rate, effective Dec. 7, will cost a typical small business about $122 a year, Aquila estimates.

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 increase, the first for Aquila since April 1997, comes as the MPSC considers a broader $14 million request filed in August.

Aquila, citing rising operating costs and system and service improvements made in recent years, wants a 60 percent raise in its monthly distribution charge — which covers the cost of transmitting natural gas to customers. It’s requesting an increase from $1.25 to $2 per Mcf.

The bulk of the proposed hike would go to businesses.

Aquila’s customer charge under the proposal would increase from $7.25 to $8 a month for residential customers (just over 1 percent), and from $15 to $20 a month (33 percent) for small businesses.

The customer charge covers the cost of internal operations such as meter reading, billing, customer service and labor.

Paul Livernois, Aquila’s community relation director in Michigan, expects the MPSC to rule on the request in late winter.

“We’re looking for that as an approval, but that’s always a negotiable thing and we’ll see how the commission rules,” Livernois said.

The utility typically seeks to adjust its distribution and service charges every three to five years, Livernois said. Aquila initially wanted to file the rate request two years ago but held off as natural gas commodity process spiked to unprecedented levels during the winter of 2000-2001.

“We didn’t feel it was an appropriate time to be going for a price hike,” said Livernois, who anticipates that Aquila likely won’t wait another five years before seeking to adjust its distribution and service charges again.

“That was a long stretch to go,” he said.

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