With wholesale gas prices for March and April nearly triple what prices were for the same months in 2002, very little can be done to prevent some impact on utility customers. Despite forward purchasing, storage and other risk management practices, Mobile Gas in Alabama said its residential customers still will see a 22% increase in their rates.

Mobile Gas admitted that it and other utility companies are facing significant challenges this winter. In addition to the record prices at many Gulf Coast and Midcontinent locations recently, the sharp decline in market activity due to the downfall of many energy marketing companies has put an increasing strain on end users and utilities during a winter with prolonged cold weather at many eastern locations.

Some locations in the Northeast have seen temperatures as much as 55% colder than the winter period a year ago, Mobile Gas noted, adding that temperatures in its service territory have been about 13% colder this year than last. With oil prices remaining strong, growing demand for natural gas among industrial and power generation companies also has contributed to gas price increases.

Mobile Gas and other utilities minimize the impact of price spikes through a variety of methods, but higher gas rates are inevitable. Mobile Gas said it has followed a gas purchasing strategy of “buying forward” or locking in gas prices in advance of the winter months, thereby securing stable and competitive prices for customers during the peak winter season.

In spring and summer 2002, the company secured most of the gas supply that it needed to meet customer demand for the winter. It also bought gas in the summer months at lower prices and stored it for use in winter months.

While gas prices have doubled in energy trading markets this past winter, Mobile Gas’ buying forward strategy and use of storage capacity enabled it to keep prices stable during the winter. However, it still will have to raise its rates effective with March bills to recover the increased costs of extra gas that it had to buy during the high-price period.

Mobile gas said average residential customers could see about a $7.50 monthly increase in their bills through Sept. 30. This equates to a 22% adjustment.

The increases in customer bills are a pass-through of the cost of natural gas purchased by Mobile Gas from the suppliers, and the company said it does not profit from the pass-through. In addition, the utility noted that the rate increase should be offset by the seasonal decline in gas usage. Customer bills still should fall despite the gas cost increase.

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