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Double-Digit Rate Increases Looming for Residential Utility Customers

With natural gas commodity prices currently trading at a $3-plus premium over last year at this time, consumers could face a long cold 2008-2009 winter.

Recent announcements from a series of utilities seeking rate hikes to help cover higher natural gas costs could be a hint of much steeper prices to come for residential customers this winter.

Customers in Missouri are already bracing for double-digit rate hikes. In recent filings with the state's Public Service Commission, Missouri Gas Energy said it is seeking approval to increase natural gas rates 27% ($35/month this winter) for 500,000 of its customers; Ameren Corp.'s Missouri utility, AmerenUE, said it will increase rates 23% ($24/month) for 120,000 of its customers; Empire District Gas Co. said it plans to increase rates 38-44% ($37-48/month) for 50,000 customers; and Dallas-based Atmos Energy Corp. said 58,000 of its customers in Missouri will see their gas rates increase by 22-31% ($30-36/month) beginning this month.

Similar rate requests have been filed by utilities in other parts of the country. Exelon Corp.'s gas and electric utility in Pennsylvania, PECO, which serves about 2.1 million customers, is seeking a 20% increase. In New Jersey, Elizabethtown Gas, which serves 260,000 customers, filed a petition that would increase typical monthly bills about 22%, and Public Service Electric and Gas Co. (PSE&G) has proposed an approximately 20% increase that would effect 1.7 million residential gas customers. Last week Questar Gas Co. proposed a 45% rate hike for its 800,000 Utah customers and a 44% rate increase for 40,000 customers in Wyoming. North of the border, Nova Scotia Power has asked the Utility and Review Board for a 13.6% rate increase that would affect all 460,000 of its electric customers.

In every case, substantial increases in wholesale supply prices were cited as the impetus for the rate hikes.

"Wholesale gas supply prices have risen dramatically in the past few months -- from $7/MMBtu in January to a range of $11 to $13 -- ahead of the winter heating season," said David Daly, vice president of energy acquisition and technology for PSE&G. "We buy gas throughout the year and lock in lower prices for our customers where possible. While the industry as a whole has recovered from the devastating hurricanes of three years ago, the market remains extremely volatile due to record high oil prices and other commodity prices, volatility in the financial markets, and the risk of hurricanes and cold winter weather forecasts."

New Jersey Natural Gas (NJNG), which requested an overall rate increase of 18% effective Oct. 1, has seen the 12-month average price of natural gas futures on the New York Mercantile Exchange (Nymex) increase 33% over the past year, rising from $8.612/Dth in May 2007 to $11.461/Dth last month, according to Mark Sperduto, NJNG vice president of regulatory affairs. NJNG's requested rate increase "could have been as much as 13% more if NJNG had not already secured prices for nearly 60% of the natural gas supply needed for the upcoming heating season," Sperduto said. The principal subsidiary of New Jersey Resources, NJNG serves more than 482,000 customers in four counties.

Year over year, the natural gas futures commodity price is currently sitting at a $3.825 premium. For the week ended June 1, 2007, front-month natural gas futures were trading at $7.878. For the week ended May 30, 2008, the front-month contract was trading at $11.703.

Alex Strawn, energy purchasing manager for Procter & Gamble, speaking on behalf of the Process Gas Consumers Group at GasMart 2008 in Chicago last month, said that while industrials are feeling the pain now, residential customers will feel it next winter because local distribution company buyers are filling storage at today's higher prices (see NGI, May 26; May 12).

"Our members are seeing prices significantly ahead of where they were last year at this time. We've never seen price gaps this large year to year," Strawn said.

Several factors point to natural gas prices of around $11-12/MMBtu or more through the summer, but if there are no large hurricane production losses, a surge in onshore gas production in the storage surplus "could be visible for all to see" by late September, according to energy analyst Stephen Smith Energy Associates Inc. (see NGI, June 2).

Electricity providers around the country, bracing for prices to climb to even higher next year, said they don't anticipate blackouts this summer -- or Congress passing climate-change legislation (see related story).

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