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Average Wholesale Price of Natural Gas Expected to Rise More Than 50 Percent

Posted on: Sunday, 18 September 2005, 21:00 CDT

Sep. 18--The worst of the hurricane surcharge at the gasoline pump may be behind us.

Not so with the natural gas coming to your house this winter.

The national average wholesale price of natural gas is expected to increase more than 50 percent this winter over last.

Part of this surge is due to damage to production and distribution facilities in the Gulf region from Hurricane Katrina.

Prices were already high, in part because natural gas increasingly is used year-round to generate electricity. The average wholesale price was under $2 per million British thermal units in January 2002. Today, it's above $10.

Prices at the gasoline pump rise and fall rapidly in response to market forces. When pump prices hit $3 a gallon and higher, drivers did a sensible thing. They conserved.

For better or worse, the price signals for natural gas don't shoot straight through the pipeline and into our homes.

For one thing, you pay for natural gas after you've used it.

When you fill the tank in your car, you get to stare at the flashing digits as you acquire the fuel. This leaves an impression when you press the accelerator to leave the station.

It's different with natural gas. Prices change every month, but under rules a panel of physicists would find confusing.

The Arizona Corporation Commission lays a heavy hand on the price mechanism.

In an effort to shield consumers from price shocks, the commission has established a process to even out price spikes -- a monthly gas-cost adjustor. But these adjustments have failed to keep up with skyrocketing prices because they are limited under commission rules.

While well intended, this mechanism has left a severe backlog of unpaid bills for utilities. The approved adjustments and surcharges haven't kept up with rising costs.

Thus, the increasing costs in the market today are going to pile on top of unpaid costs from the past.

When customers are faced with high bills, it's hard for them to understand that gas utilities make no money on the commodity gas costs that are passed through. Southwest Gas and UniSource Energy Services make profit only from the service of delivering gas.

Both utilities are preparing informational brochures to mail to customers in advance of the winter heating season. Southwest Gas has about 260,000 customer accounts in the Tucson area. UniSource has 136,000 gas customers in Santa Cruz County and four rural Arizona counties to the north.

Both utilities have "hedged" on the purchase of gas for delivery this winter in order to moderate the price to be passed on to customers. But they still expect commodity gas charges to increase dramatically from last year.

Unfortunately, customer bills still haven't reflected past costs. Southwest Gas currently has a $28 million uncollected balance for gas used last winter by Arizona customers. The charges and surcharges allowed by the ACC have not kept up with the rising costs.

UniSource has about $4 million in uncollected costs hanging over its books as winter approaches.

In the long run, no regulatory mechanism can shield customers from market forces.

We will pay for natural gas sooner or later at market prices.

A more direct connection between prices and consumption might work to further a goal that everyone could endorse -- conservation.

A straightforward monthly charge for gas delivery and a more direct pass-through of commodity gas charges would reveal reality to gas customers.

Customers fearing higher winter bills should consider taking advantage of year-round average billing that spreads the winter-usage spike out over 12 months.

Southwest Gas customers can get more information on budget billing by calling 889-1888.

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To see more of The Arizona Daily Star, or to subscribe to the newspaper, go to http://www.azstarnet.com.

Copyright (c) 2005, The Arizona Daily Star, Tucson

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

SWX, UNS,

Source: The Arizona Daily Star

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