Utility Seeks Rate Cut for Natural Gas

By Timothy C Barmann

But any savings could be wiped out by a pending gas-distribution rate increase also being sought by National Grid.

Just seven weeks after increasing natural gas rates by 8 percent, National Grid has filed a request to lower rates for its Rhode Island customers by 4.6 percent.

The company said the market price for natural gas has fallen since the rate increase went into effect on July 15, which means that the company’s expected cost to buy the fuel for its customers has fallen as well.

However, National Grid said it has no plans to seek a decrease in electricity rates because the recent declines in the cost of energy were still not enough to cover the cost of buying power for its customers. The company raised electricity rates by 21.7 percent on July 15 as well.

The gas rate decrease will lower the bill of a typical heating customer who uses 922 therms of natural gas to $1,499 a year from the current typical bill of $1,570 a year, a decline of $72, or 4.6 percent. However, a pending increase in the gas distribution rate could offset this decrease.The company filed the request to cut the gas rate with the Public Utilities Commission late Tuesday and seeks to implement the new rate on Nov 1.

Separately, National Grid is still seeking an increase in natural gas distribution rates of about 5 percent. Those charges, which are separate from those for the gas itself, cover the company’s cost of operating and maintaining the gas distribution network. The PUC has scheduled public hearings on that request for next week.

If the PUC approves both requests, the distribution charge increase would essentially equal the gas charge decrease, leaving rates unchanged for the typical customer.

In a 169-page filing, National Grid explained why there has been a “significant” drop in natural gas prices.

“The market has begun to recognize that domestic gas production is continuing to increase, extending the improvement begun last year,” said Gary L. Beland, manager of gas supply, regulatory division, for National Grid, in written testimony submitted with the filing.

“In the Gulf of Mexico, an area where a longer term decline had been accelerated by the production losses caused by hurricanes Katrina and Rita in 2005, there are new supplies coming on though production is still below historical levels,” he said.

“There has been considerable success in the Rocky Mountain Basin and these supplies are expected to become more available when the new Rockies Express pipeline is extended to Ohio in 2009. The best success has been in production from shale formations with the most prolific, the Barnett Shale in Texas….”

“In addition, a number of other shale areas are in development as new drilling technology has made previously uneconomic formations profitable. It is expected that the record level of drilling will continue.”

Beland warned that oil remains significantly more expensive than natural gas and that over time, oil can be expected to pull up natural gas prices and drilling costs, unless oil prices fall further.

July’s rate increase was prompted by a steep rise in natural gas futures. In the period between April and July, the contract for next- month delivery rose 50 percent from about $9 to about $14 per million BTUs. But over the past two months, futures have dropped significantly to about $8 per million BTUs.

Crude oil has been falling as well, but not nearly as precipitously. Futures are down about $40 a barrel, or about 26 percent, since surging to a record-high $147.27 a barrel on July 11.

On the New York Mercantile Exchange yesterday, crude oil for October delivery fell 36 cents to close at $109.35 a barrel. Natural gas for October delivery rose 3/10 of one cent to settle at $7.264 per million BTUs. tbarmann@projo.com / (401) 277-7369

Originally published by Timothy C Barmann, Journal Staff Writer.

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