A combination of ample supplies and dwindling demand has sent wholesale natural-gas prices plummeting – a stark contrast from a year ago.
U.S. natural gas prices on the wholesale level, although constantly fluctuating, have dropped 60 percent or more since last December. According to a forecast released in October by the federal Energy Information Administration, utility bills nationally should drop an average of 34 percent for homes heated by natural gas.
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“This year’s fundamentals reveal a much-improved scenario for consumers this winter,” R. Skip Horvath, president of the Natural Gas Supply Association, said in an “Oil & Gas Journal” article last month.
But for customers of Southern Union Co. – parent firm of Providence Gas and Valley Gas, which Southern Union acquired last year – rates won’t budge from where they were last winter, when they spiked 30 percent.
“Natural gas prices will remain at current rates for this coming winter,” according to a statement released earlier this month by Southern Union’s New England division.
Despite the recent drop in wholesale prices, the utility says it still needs to recover $35 million in “underpayments” from last winter. Providence Gas and Valley Gas raised rates then, but it was not enough to cover the soaring cost of wholesale gas, which had jumped as much as fivefold.
“(Southern Union) was paying more for gas than it was charging the customer,” Southern Union spokesman Paul Fioravanti. “The balance has to be recovered.”
The Public Utilities Commission last year approved the “under-recovery” plan as a way to protect consumers from sky-high wholesale prices.
For now, the utility plans to leave the gas rate in place at least through June 2002, when the deferred balance should be zeroed out. But Fioravanti said the utility could request a rate change if wholesale prices fall further.
“It’s possible that we may file for a cost-of-gas adjustment, depending on what wholesale prices are doing,” Fioravanti said.
Although customers were underpaying for their gas last year, many didn’t realize it – all they saw were gas bills going up 30 percent. With those rates remaining relatively high, a growing number of businesses that use a relatively large amount of natural gas are buying from outside suppliers.
Non-regulated suppliers, such as Select Energy, Sprague Oil and others, have been offering natural gas to Rhode Island consumers since the market was deregulated in the mid-1990s. Customers pay outside suppliers for the commodity, but pay a separate charge for Providence Gas or Valley Gas to deliver the gas from the city gate.
“Anyone using a lot of gas in their industrial processes can do a lot better than Providence Gas (rates) today,” said Roger Buck, executive director of The Energy Council of Rhode Island, which represents about 85 of the state’s largest energy users.
Bryant College, for example, saved roughly 30 percent on gas costs last year through its contract with another supplier, according to Bill Gilmore, facilities engineer at Bryant. Bryant signed a contract for around $4 per thousand cubic feet (mcf), while wholesale prices later shot up to $10 per mcf.
“Last winter we got a great deal, because we locked in before wholesale prices went crazy,” said Gilmore. “We didn’t see the spikes that other people saw.”
Customers that use a lot of gas are in better position to negotiate favorable rates with outside suppliers. Businesses also have an advantage if they have a “flat load,” using similar amounts of gas in both summer and winter.
Bryant recently converted clothes dryers in its dormitories to gas and installed gas-powered air-conditioning units in an effort to narrow the gap between its winter and summer gas use. Gilmore said the move should allow the school to negotiate better gas rates in the future.
Only customers that use a predetermined minimum amount of gas annually are eligible to buy from an outside supplier. But Buck warns that it is difficult for most business owners to discern when they’re getting a good deal in the non-regulated market.
“There are many (commercial and industrial) people out there that are eligible” Buck said. “But it’s a very complicated process.”
Buck offers another caveat: Customers who want to switch from their utility to a different gas marketer might have to pay their portion of under-collected payments from last year. He said one TEC-RI member who was ready to sign a contract with another supplier found out that he owed Southern Union $20,000 in deferred gas payments. “This is a big issue,” Buck said. “How does one decide if he can get a good deal from another supplier if he doesn’t know what he’s really paying his local distribution company? The bill should reflect the actual rate.”
Meanwhile, Southern Union filed an application with the PUC earlier this month to increase its distribution rate, which is the price for delivering gas. The rate-change application is aimed at creating a uniform rate for both Valley Gas and Providence Gas customers.
Under that plan, which the PUC will rule on next spring, Valley Gas customers would pay as much as 14 percent more for the distribution portion of their bill. Providence Gas customers’ distribution rates would drop less than 2 percent.
