New England Gas boosts its earlier 13-percent request to factor in hurricane-related energy spikes. A typical customer would pay $345 more a year if the increase is approved.

01:00 AM EDT on Saturday, October 1, 2005

BY TIMOTHY C. BARMANN
Journal Staff Writer

Already facing the most expensive winter heating season ever, Rhode Islanders may get slapped with yet another steep utility-rate increase.

New England Gas Co. said yesterday that surging fuel prices caused by the two recent hurricanes in the Gulf of Mexico have forced the company to raise an earlier rate hike request to 23.8 percent.

The company had sought a 13-percent increase on Sept. 1, in a filing to the Rhode Island Public Utilities Commission. That request had not factored in any impact on the energy markets from Hurricane Katrina, and it was filed before Hurricane Rita struck.

The two hurricanes have crippled the production of oil and natural gas in the Gulf, sending futures prices to record high levels.

Under yesterday's updated request, a typical heating customer of New England Gas who uses 1,035 therms of energy a year would pay $1,796 for natural gas between Nov. 1, 2005, and Oct. 31, 2006. That's an increase in annual heating costs of $345, New England Gas said.

The company wants the increase to be effective Nov. 1.

Yesterday's request came a day after the Public Utilities Commission granted an increase to Narragansett Electric of 12.4 percent, which amounts to an annual increase of about $94 for a typical customer. The electric company indicated that in the next two months, it will likely seek an additional rate increase of about 12 percent.

It also comes at a time when the average price of gasoline at the pump is up 51 percent, compared with last year, and home heating oil is up 57 percent in the same period.

New England Gas, a subsidiary of Wilkes-Barre, Pa.-based Southern Union Co., provides service to 245,000 customers in Rhode Island. About 46 percent of the state's households use natural gas for heat, according to the 2000 census.

The company buys gas on behalf of its customers and is allowed to pass on those costs, without markup, as long as it makes "prudent" decisions about the purchases. The Public Utilities Commission decides whether the company was prudent.

The company is not allowed to make a profit from its purchase of gas for its customers.

In yesterday's filing, the company said the increase is needed to cover the projected cost of natural gas between Nov. 1 and the end of October 2006.

Without any increase, the company projects that the money it collects from customers will fall short of the actual cost by $44.5 million at the end of October 2006.

The projected costs were based on natural gas prices on the New York Mercantile Exchange on Wednesday.

The methods by which New England Gas buys fuel for its customers are governed by a program established by the Public Utilities Commission. Under the plan, the company is required to lock in at least 80 percent of the natural gas needed for the coming winter by Nov. 1.

In the company's Sept. 1 filing, the company indicated that its buying plan was buffeting customers from some of the volatility in the energy markets.

"The bulk of the company's winter supplies are shielded from current price increases occurring in the market," said Gary L. Beland, director of gas supply for New England Gas, in testimony filed on Sept. 1.

As of yesterday, New England Gas had locked in more than 70 percent of its winter supply, according to Chris Medici, a spokesman for the company.

He said the company buys gas every day, and the remainder of what's needed for the winter is driving the company's rate-increase request. About 75 percent of the company's gas supply originates in the Gulf of Mexico, and the rest comes from Canada, Medici said.

New England Gas was granted a 4.9-percent increase as of May 1 and a 3.1-percent increase last November. Current rates for a typical residential heating customer are about 18.2 percent, or $222 a year, higher than they were three years ago, according to calculations by The Journal.

The proposal is likely to be strongly opposed by community groups and public officials who decried the company's earlier request for a 13-percent increase and lobbied against Narragansett Electric's recent rate-increase requests.

Opponents have said that energy prices are already unaffordable, and raising rates higher will exacerbate the problem.

Natural gas prices have been on a steady rise during the past three years, mainly because demand is outstripping supply, according to the American Gas Association.

Much of the higher demand had come from the increased reliance on natural gas to generate electricity, especially in New England. The fuel has been favored by generators because it was relatively inexpensive, and it produces less pollution than other fuels.

Since 1999, the majority of power plants built in New England run largely on natural gas, according to ISO New England, the operator of the region's power grid. About 30 percent of all the electricity generated in New England last year came from natural gas, double the amount in 1999. ISO New England said it expects that trend to continue.

At the same time, production in the United States has been stagnant. Annual production of dry natural gas has remained at about 18.9 trillion cubic feet for the past 10 years, according to the U.S. Department of Energy.

About 82 percent of natural gas consumed in the United States is produced domestically; most of the remaining 18 percent comes from Canada, according to the Energy Department.

Timothy C. Barmann covers energy issues, utilities and technology. He can be reached at tbarmann [at] projo.com