With its original natural gas customer choice program winding down after three years, SEMCO ENERGY Gas Co. said it has applied to the Michigan Public Service Commission (MPSC) for approval to extend its current customer choice program from April 1, 2002 through March 31, 2005, at an estimated fixed cost of $4.99/Mcf.

Although SEMCO said the actual cost will be determined by the market price on the day it actually locks in its gas supply contracts, if the $4.99/Mcf price sticks, it would represent a $1.75 increase over the three-year fixed rate of $3.24/Mcf. The current customer choice program, which began April 1, 1999, expires March 31, 2002.

The move comes just weeks after MichCon — another gas marketer in the choice program — filed for new gas commodity rates with the MPSC. The filing proposed a maximum Gas Cost Recovery Rate (GCR), which represents a price cap of $4.54/Mcf (see Daily GPI, Sept. 4). Starting with January bills, MichCon customers will pay gas commodity rates based on market prices and set through the GCR process. The rate calculation is regulated by the MPSC and determined through the same GCR process used prior to the three-year program.

MichCon said it wanted to move back to using GCRs because the fixed-rate plan over the last three years left them exposed. The company said during the past three years in the experimental program its customers have paid frozen rates and have saved approximately $500 million because they were insulated from increasing market prices.

Taking a different stance on the program, SEMCO ENERGY said it has faith in the fixed rate approach.

“We believe this program, incorporating a fixed rate for three years, is the best way to protect our customers from the volatility of the natural gas market,” said Jon A. Kosht, CEO of SEMCO ENERGY Gas Co. “While this proposed rate includes an increase in the amount customers will pay for natural gas it also provides a shield against the price spikes the market experienced earlier this year. Our current program protected SEMCO ENERGY customers from significant price increases then and we’d like the opportunity to continue to offer this type of price certainty for an additional three years.”

SEMCO ENERGY said if it is not allowed to extend its fixed rate program, its GCR clause will automatically be reinstated April 1, 2002. The GCR is the regulated amount the 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. The MPSC suspended SEMCO ENERGY’s GCR factor in April 1999 when the experimental customer choice program went into effect.

“As a result of our current Customer Choice program and fixed rates, the MPSC estimates that our customers have saved $112 million in energy costs in 2000 alone,” Kosht said. “If our proposal to the MPSC is approved, SEMCO ENERGY customers may see similar benefits over the next three years in an environment of higher gas prices.”

As in the current program, SEMCO ENERGY is also proposing that the new three-year fixed rate program include an incentive clause for the utility to reduce its costs below a prescribed level. If the company succeeds in doing so, it said it will share a portion of the savings with customers when the company’s profits exceed levels approved by the MPSC. In its filing, the company asked the MPSC for a ruling by Nov. 30, making the new program effective April 1, 2002.

A division of SEMCO ENERGY Inc., SEMCO ENERGY Gas Co. distributes natural gas to more than 250,000 residential, commercial and industrial customers in Michigan.

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