Not enough hedging and abnormal weather on both coasts played a role in driving Bellevue, WA-based Puget Sound Energy (PSE) to announce Wednesday it was filing with state regulators for about a 17%, or almost $10 monthly, retail natural gas rate increase. Only 25% of the Puget’s supplies were locked in at fixed prices last year, a spokesperson said Thursday in an interview with NGI.

Severe Northeastern winter weather which strained supplies across the grid, combined with the Northwest’s unseasonably dry weather combined to escalate wholesale gas prices. Last year, under the PGA process, Puget rates were dropped three times for a total of about 30% overall, reflecting lower costs in the wholesale gas market. The year before, 2001, in the midst of the western supply/price meltdown, average monthly gas bills had shot up to almost $80. After more than a year of relief, the tide has turned once again, Puget officials said.

“Unfortunately, the gas market has now turned the other way,” said Kimberly Harris, PSE’s vice president of governmental and regulatory relations. “It’s indicative of the volatile price swings we have seen the past few years in the energy markets.”

The two other major private sector gas utilities serving parts of the state of Washington, however, reported that they are not contemplating similar rate increase filings at this time, although it is expected prices will go up. Both of them — Avista Corp.’s utilities and Portland, OR-based Northwest Natural Gas Co.– are on a 12-month gas cost adjustment schedule, somewhat different from PSE’s “purchased gas adjustment” (PGA) mechanism that kicks in when costs increase or decrease past pre-set trigger levels.

Three-quarters of the Puget Energy utility’s natural gas supplies are set in long- and short-term variable-priced contracts tied to natural gas price indices, said Puget’s spokesperson Grant Ringel. About 80% of its supplies come from western Canada, both British Columbia and Alberta, through Salt Lake City-based Northwest Pipeline Co. The rest comes from the U.S. Rockies. Ringel said proprietary restrictions kept him from acknowledging what portion of the PSE supplies were purchased in the spot market over the last six months.

The request made Wednesday for a straight pass-through, effective April 10, of PSE’s increased wholesale gas costs seeking a bump up of 13 cents/therm, taking the average monthly bill to $62.40, was based on the last six months of rising wholesale prices and the prospect that the prices will stay above historical averages in the months ahead, Ringel said.

Since the utility’s gas rates were adjusted last September, Puget Sound Energy said its forward-looking price for gas supplies has increased by about 50%. The Washington Utilities and Transportation Commission is expected to make a decision by early April, and the company emphasized that even with the increase, its retail gas rates would still be “among the lowest” in the state.

While Avista is not planning to make a gas-cost rate filing at this time, a Spokane-based spokesperson said if wholesale gas prices stay as high as they are now, the company almost surely will be following Puget’s lead, but later in the year. Avista also has a PGA procedure with trigger mechanisms, but it buys almost none of its gas on the daily spot market, dividing its gas-buying portfolio between half in 6- to 12-month contracts, and the other half in 30-day purchases, the spokesperson said.

For Puget, its portfolio didn’t mitigate several factors that it said helped boost wholesale gas prices: “(a) an exceptionally cold winter east of the Rocky Mountains that pushed up gas demand nationwide; (b) lagging exploration and drilling of new gas fields across North America; (c) an expected increase in demand for gas-fired electricity in the West because of low precipitation this past winter; and (d) an unstable international petroleum market,” the utility said in its written announcement of the rate hike request.

In contrast, Northwest Natural Gas said the same set of circumstances has actually been “beneficial” for its gas-buying, according to Randy Friedman, who runs the program. With the less severe winter in the Pacific Northwest, the gas utility has been able to sell excess supplies into the wholesale market at the current higher prices. The percentage of its supplies that is hedged varies monthly, but on average over a gas-buying year (Nov. 1-Oct. 31), it is about 90% Friedman said.

All of the region’s gas utilities get the bulk of their supplies from the two western Canada provinces and lesser amounts from the Rockies. Northwest gets about 80% from Canada, and the majority of that is from British Columbia. It stores roughly 20% of its supplies, said Friedman, adding that most of those supplies are purchased on a 12-month-ahead basis and he has not done any buying since mid-January.

The drought in the Pacific Northwest will be a factor, Friedman said, noting that “it is continuing to perpetuate higher prices” as he attempts to lock in supplies for the next procure year beginning Nov. 1. He said Northwest has about 40% of next year’s supplies under contract at this time.

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