Arizona regulators are warning customers about higher retail natural gas bills this winter and the prospect of historically high charges for natural gas for the foreseeable future. The five-member elected Arizona Corporation Commission (ACC) put its collective thoughts in an editorial distributed to news media throughout the state last Monday.
“Growing worldwide demand and limited supply have forced energy prices up everywhere,” the ACC’s editorial said. “And natural disasters like Hurricane Katrina make the situation even worse.”
Earlier this month, the ACC held a natural gas forum to outline the challenges this winter and to hear from the state’s principal natural gas distribution utilities — Southwest Gas Corp. and UniSource’s UNS Gas — on what they planned to do in forewarning customers. The California Public Utilities Commission has scheduled an en banc hearing next Thursday in Los Angeles to gather information from the state’s major gas utilities on rising wholesale gas prices and their impact on low-income consumers. Regulators elsewhere in the West are taking similar actions.
“Consumers will face significantly higher natural gas bills this coming winter as a result of higher gas costs faced by utilities in recent months,” a CPUC spokesperson said. “The impact of Hurricane Katrina [and Rita] on gas production, processing and transportation facilities has the potential to make gas costs even higher. This is also likely to result in higher electric bills.”
While outlining a common laundry list of seven “easy, inexpensive ways” for customers to lower their upcoming monthly natural gas bills, the ACC said it would be holding a series of public meetings in the northern part of the state to forewarn customers, and it asked UNS Gas to promote its gas conservation programs “more widely than before.”
“As the pressures on household incomes increase from higher gasoline, heating and cooling costs, I want to be assured that the utilities are doing everything in their power to alert customers that they will be seeing higher bills this winter,” said ACC Commissioner Kris Mayes.
An ACC staff presentation at the forum underscored that gas consumption overall in Arizona has nearly tripled over the last eight years, and almost all of that growth is attributable to increased gas-fired electric generating plants. Despite including some of the fastest growing population areas in the nation, Arizona’s residential and small commercial customer gas demand growth stayed relatively flat, the staff analysis said.
Upward pressure on wholesale gas prices has been “unrelenting,” according to Bob Gray, a staff director at the ACC. He outlined more than a dozen factors, starting with wellhead natural gas price deregulation in the 1980s to recent disruptions in coal, nuclear and hydroelectric supplies in the Southwest.
In addition, Gray said, “Arizona utilities face significantly higher pipeline transportation costs beginning in January 2006 as a result of the El Paso pipeline rate case.”
While balancing his outlook with some optimism because of Arizona’s relatively low retail natural gas utility rates, Gray nevertheless concluded wholesale prices will stay at record levels, the hurricanes will make the situation worse, and it is impossible to calculate “how high natural gas prices may reach this winter and into the future.” What is clear is that “natural gas prices will play a significant role in driving the costs utilities incur and pass along to their customers,” he said.
As mitigation, Arizona utilities engage in what Gray called “varying levels of hedging their prices,” so they have reduced price swings that consumers might otherwise feel. As of this month, UNS Gas’ tariffs reflect a cost of gas (both commodity and pipeline transportation) of 68.3 cents/therm; Southwest Gas tariffs reflect a cost of gas of 63.4 cents/therm, Gray said. Separately, UNS Gas said its current projected commodity prices for gas is in the $1/therm range, and it has 45% of its supplies for the winter hedged with a fixed price of 59 cents/therm. An average price for UNS’ winter gas is in the 80 cents/therm range, including hedged supplies.
In addition, he noted that most added electricity demand in the state is met with natural gas-fired generation, meaning “high natural gas prices will exert upward pressure on electricity prices in Arizona.” For UniSource’s gas utility, however, rates are frozen, so there will be no gas cost increases passed on to retail customers before the end of 2008 as part of a 1999 rate settlement the company’s parent entered into.
UniSource’s General Manager for Fuels/Wholesale Power, David Hutchens, told the ACC that higher gas costs will not affect customers of UniSource’s two retail utilities –Tucson Electric Power (TEP) and UniSource Energy Services, its natural gas and electric combined utility operations outside of the TEP area.
Back in California, the CPUC is preparing for the hearing next week in which the state’s three main private sector gas utilities will discuss the potential impact of higher wholesale gas prices on low- and fixed-income customers, as well as allowing the regulators to explore “a full range of actions that the utilities, regulators, and individual consumers can undertake to reduce the impact of higher costs.”
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