Unable to reach an agreement on frozen rates for natural gas with the Michigan Public Service Commission staff, SEMCO Energy Gas Co. on Friday withdrew its request to extend its Customer Choice Program, which included a frozen gas cost. Under the SEMCO proposal, a frozen gas cost would have been in effect from April 1, 2002, through March 31, 2005. The utility will instead reinstate its Gas Cost Recovery (GCR) pricing system when the current customer choice program expires on March 31, 2002.

SEMCO President Jon A. Kosht said the application to extend the program, filed in September, was withdrawn after the company was unable to reach a deal with the MPSC staff and other interested parties on a frozen rate for natural gas for the three years of the proposed extended program.

SEMCO said it sought a maximum price of $4.99/Mcf, with the actual price determined by the market price on the day it would have received authorization from the MPSC. The company said the MPSC staff contended the $4.99/Mcf was too high, and that the frozen rate conflicts with efforts to develop a gas Customer Choice Program for the state of Michigan.

“We are, of course, disappointed that an agreement could not be reached that would have allowed SEMCO Energy to continue our frozen rate program to our customers,” Kosht said. “The benefits of a frozen rate were proven in February of this year when SEMCO Energy customers were shielded from the sudden volatility in the natural gas market. We had hoped to continue to offer similar benefits through an extension in the Customer Choice Program.”

The company said MPSC estimates showed that customers saved $112 million in energy costs in 2000 alone because of the frozen price. It was the only natural gas distribution company in Michigan to seek permission to extend a customer choice program with a fixed price for customers.

When the current three-year program ends March 31, 2002, the utility’s GCR clause will automatically be reinstated. The GCR is the regulated amount a utility may charge customers in order to recoup the costs of buying natural gas on the market. The MPSC has the authority to adjust the GCR factor, based on the variability in natural gas market prices. A surcharge or refund is passed along to the customer if actual gas costs incurred by the utility are higher or lower than estimates. The MPSC suspended the utility’s GCR factor in April 1999 when the experimental Customer Choice program went into effect.

SEMCO Energy Gas Co., a division of SEMCO Energy, distributes natural gas to more than 267,000 residential, commercial and industrial customers in Michigan.

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