As a glaring footnote to natural gas price volatility sparked immediately after the two big Gulf of Mexico hurricanes late last summer, Portland, OR-based Northwest Natural Gas Co. and some of its largest customers are locked in a dispute over retail natural gas deals the utility offered them.

An investigation is ongoing at the Oregon Public Utility Commission and Northwest Natural is suing its largest customer, while two-thirds of the added load in 19 separate contracts has already left the utility seeking rate relief.

The longer-term viability of the Oregon PUC probe is unclear since Northwest Natural has settled with 18 of the customers, leaving only its litigation with Georgia-Pacific, the wood products giant and the utility’s largest industrial customer. A spokesperson for Northwest Natural said it attempted to settle with Georgia-Pacific without any success, so it filed its lawsuit in a state court earlier this month.

An attorney for the Northwest Industrial Gas Users, of which the 19 are members, told the Portland Oregonian that the companies face added annual costs for natural gas in the range of $20 to $30 million. The industrial customers contend that they thought the utility was offering them a fixed price from a supply already locked up when they each signed separate one-year supply contracts.

A senior spokesperson at Northwest Natural argued that the utility cannot understand how the industrial customers misunderstood the rate offer. In the Oregonian report, the utility maintained that it did everything within its rights and under existing regulatory rules in filing last November to raise rates when it increased them 15% in October.

Customers said Northwest Natural has “given every indication it had already secured” the one-year strips of gas and no indication that the price was not firm when it signed the deals — both before and after Hurricanes Katrina and Rita hit.

A spokesperson for the PUC told the Oregonian the regulatory staff was unable to explain how so many sophisticated business customers who buy relatively large volumes of gas for their businesses could believe that Northwest Natural made a “commitment” when the utility categorically denies it.

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