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High Natural Gas Prices Will Raise Electric Rates

Posted on: Thursday, 27 October 2005, 00:00 CDT

By Thomas Content, Milwaukee Journal Sentinel

Oct. 26--The toll on consumers from the massive hurricanes that hit the Gulf of Mexico this summer won't be limited to pain at the gas pump or 50 percent increases in home heating bills.

Surging energy prices, aggravated by a rough Gulf hurricane season, are continuing to hit customers hard.

The skyrocketing price of natural gas, up 82 percent from a year ago after hitting a record high Tuesday, will drive up monthly electric bills as well.

For We Energies, the state's largest utility, the natural gas price spikes will add at least $84 million to its $143 million price increase on electricity it requested earlier this year.

For a typical residential customer now paying $74 a month, the monthly electric bill would jump by 11 percent, or $8 a month. That compares with an increase of $5 a month that the utility forecast in July.

The price of natural gas surged after hurricanes Katrina and Rita, which reduced supplies of natural gas. Those spikes prompted utilities to warn customers that heating bills could be 40 percent to 50 percent higher this winter, or at least $300 to $375 for a typical We Energies customer using 950 therms of gas between November and May.

Natural gas price swings affect electric bills because a growing number of electric power plants are fueled with natural gas. These plants were used more often than normal last summer, thanks to hot weather and because Wisconsin utilities have been conserving coal after disruptions in deliveries from Wyoming.

The $84 million We Energies projection is based on natural gas prices more than a month ago and is subject to change by the time the state Public Service Commission considers the request in late December. The final amount of the increase will be determined by the going price for natural gas at that time.

Natural gas prices have risen by more than 50 percent since July 1, when the utility first asked for the $143 million price increase, utility Vice President Roman Draba said in a letter to the commission.

The utility asked for $84 million more "because of this dramatic increase in fuel costs caused by gas prices, which are entirely outside of the company's control," Draba said. If approved, the rate increase would take effect Jan. 1.

We Energies said it will give customers a refund if the fuel costs in 2006 end up lower than the amount approved by regulators, utility spokeswoman Beth Martin said.

The commission has scheduled a Nov. 15 public hearing and is expected to act on the request before the end of December.

We Energies is not the only utility seeking to recoup the higher cost of natural gas and fuel. Since the hurricanes, all five investor-owned utilities in Wisconsin have asked regulators for about $200 million in increases on electric customers' monthly bills.

Madison-based Wisconsin Power & Light got interim approval this month to raise rates by 4.8 percent to let the utility recoup $41 million in higher natural gas costs. Green Bay-based Wisconsin Public Service Corp. is seeking to raise rates by 17 percent on Jan. 1, with the recent surge in natural gas prices comprising about one-third of that increase.

"We had an already tight demand-supply situation with natural gas, and Katrina and Rita exacerbated the situation," said Wisconsin Power & Light spokesman Scott Smith.

Wisconsin isn't alone in seeing electricity price increases relating to natural gas. In Colorado, Xcel Energy said this week that it would seek an increase of 19 percent on Jan. 1, while in Texas some customers are looking at electric rate increases of 24 percent between now and January. Two New Hampshire utilities, meanwhile, are warning that some business customers could see price increases of 60 percent in January, according to Associated Press reports.

But the cuts are hitting Wisconsin at a time when its electric rates have already soared past those of nearby states, said Nino Amato, president of the Wisconsin Industrial Energy Group, which represents manufacturers.

"When you add in that prior to Katrina and the escalating natural gas fuel cost you've already seen huge increases in Wisconsin utility prices," Amato said.

"Now we have the perfect storm" of rising rates and costs tied to the creation of a new wholesale energy market "that could result in a downturn for our economy," he said.

Regulators can't control the price of natural gas, but customer advocates want action in areas they can control, such as the amount of profit that utilities are allowed to make.

"These increases are really hammering consumers, and the commission needs to balance the interests between shareholders and consumers," said Charlie Higley, executive director of the Wisconsin Citizens' Utility Board. "We think it's time for shareholders to help absorb some of these costs."

For We Energies, the price increase that would take effect Jan. 1 comes after two electricity price increases totaling 7 percent that have hit customers since the start of the year.

One of those increases, for $115 million, or about $3 for the typical residential customer, was an interim increase that is expected to be finalized in the next month. Based on updated natural gas prices supplied in late September after the hurricanes, the utility estimated that its earlier increase might go up slightly, by about $4 million. Gas prices have since surged again.

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Copyright (c) 2005, Milwaukee Journal Sentinel

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WEC,

Source: The Milwaukee Journal Sentinel

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