Roanoke Gas Plans to Request Rate Drop

By Andrew Kantor andrew.kantor@roanoke.com 981-3384

The 57,000 Roanoke Gas customers who saw the price of natural gas jump 40 percent to 50 percent in October might be in for a pleasant surprise: The utility plans to request a rate decrease later this month from the State Corporation Commission.

And Atmos Energy, which supplies natural gas to the New River Valley, already lowered the December price of gas for its customers.

Unlike oil and other companies, natural-gas suppliers in the U.S. have no control over the price they charge. That’s because they’re prohibited from making a profit on the gas itself — they simply pass the cost through to the customer, earning money on the delivery and other services.

They’re regulated by the State Corporation Commission, which determines two things: the price they can charge for delivery (which doesn’t change often), and the pass-through price for the gas itself (which can be much more volatile).

The price reductions — or, in the case of Roanoke Gas, the expected reduction — comes because the market price for gas has started to drop.

In case you hadn’t noticed, oil prices spiked enormously in the wake of Hurricane Katrina, but have since come down as refineries, ports and pipelines recovered. Natural gas, however, has remained costly, leaving customers wondering when the “Katrina Effect” would end.

That’s because gas and oil are two very different energy beasts.

“The biggest reason I think that natural gas prices didn’t come down like oil prices did is that oil is an international commodity and natural gas is a domestic commodity,” said John Williamson, president of Roanoke Gas.

About 98 percent of the natural gas used by the United States comes from the United States. The self-sufficiency has benefits, but in the face of natural disasters it can also mean having 98 percent of our eggs in one basket.

As Williamson put it, “We can import oil from Saudi Arabia or wherever, but there’s very little importation of natural gas.”

According to the American Gas Association (no jokes, please), Katrina knocked out about 15 percent of the country’s total natural gas production. And that was the second of a one-two punch made possible by the country’s energy policy, according to Williamson.

In the 1980s, he explained, Congress put a moratorium on drilling for natural gas on most of the country’s coasts, except for parts of the Gulf of Mexico and onshore in parts of Appalachia. That was fine, because the supply was plentiful.

But, said Williamson, “During the first Bush recession [in the late 1980s], Congress took the moratorium off using natural gas to generate electricity.” That increased demand while leaving the ban on most offshore drilling in place. The market tightened.

Then came the hot summer of 2005 and all those air conditioners sucking up electricity. More gas was needed to generate it. Supply shrank further.

“And then,” Williamson said, “the hurricanes hit and shut off the Gulf of Mexico.”

With the loss of gas production, prices shot up. But now the recovery is under way, helped in part by the recent mild weather.

“Production is increasing and storage is coming back,” Williamson said. “Gas usage was less in October and November than expected.”

It’s Economics 101: The increased supply means lower prices on their way — barring, of course, another disaster or a sharp downturn in the weather.

But Williamson wouldn’t say how much of a decrease Roanoke Gas customers can expect because the company won’t file the paperwork until later this month.

“I’m not going to speculate with you,” he said, but “at this stage we’re anticipating asking for a lower rate.”