WisBusiness: Natural Gas Prices Dictate Utility Rate Hikes

By Brian E. Clark

Natural gas prices spiked last week on the New York Mercantile Exchange
at $15.52 per 1,000 cubic feet – more than twice the price of
a year ago.

They may rise even higher in the months to come, making this winter a
financially painful season for Wisconsin consumers and businesses
– especially if cold weather continues.

The state Public Service Commission (PSC) has permitted Wisconsin
utilities to pass on price hikes for electric rates, granting fuel rate
increases of more than $250 million this year.

And more hikes may – or may not – be on the way.

“It mainly depends on the price of natural gas,”
explained Amanda Riddell of the PSC. She said, however, that her agency
could also adjust rates downward if natural gas prices should fall.

Steve Krause of Madison Gas and Electric said his company hopes it will
not have to ask for any more price hikes for the clean-burning natural

“But prices are remaining at historic highs,” he
said. “We reached some new ones in recent days. But we
don’t anticipate going back in.”

Most experts think natural gas prices will not decline – at
least in the short term.

Since 1997, natural gas costs have increased by 400 percent, while
prices for coal – a dirtier fuel – have gone up by just 40

Michael Economides, co-author of the “The Color of Oil,” predicted at a
recent energy conference that natural gas could hit $20 by Christmas.

“We are facing extraordinary times,” PSC member
Mark Meyer mused during a recent rate hearing. He blamed recent
hurricanes for disrupting natural gas supplies and driving up costs.

Earlier this month, the PSC gave Alliant Energy of Madison permission
to hike its electric fees $55 million, or 6 percent, to cover the
rising cost of natural gas. The hike will mean $3 per month to

And on Monday, the commission granted Green Bay-based Wisconsin Public
Service Corp. a $79 million, or 9.9 percent, increase in rates for 2006.

PSC spokeswoman Linda Barth said nearly three-quarters of the hike is
due to the rising wholesale price of natural gas – an
unregulated commodity.

In October, the PSC gave Alliant a $41 million, or 4.8 percent, rate
increase. In November, the agency granted Milwaukee-based We Energies a
$122 million, or 6.2 percent change.

Also that Month, the PSC approved a $12 million, or 4.2 percent,
increase to Madison Gas and Electric Corp. And MGE anticipates its
rates will rise as much as 15 percent in 2006, largely because of
soaring natural gas prices.

Beth Martin, a spokeswoman for We Energies, said she expects the PSC to
act on a electricity rate increase of roughly $90 million –
based on natural gas prices – in coming months.

But she said We Energies hopes the commission will use current costs
figures for natural gas when it decides, because the
commodity’s price is so volatile.

Charlie Higley, executive director of the Citizens Utility Board
consumer group, said he does not fault the utilities for seeking to
pass on rising gas prices.

“We want them to manage their fuel costs so rates are as low
as possible for consumers,” Higley said. “But there
are no signs that they are gouging.

“The reality is that Wisconsin utilities are being gouged by
big oil, which has used the hurricanes as a way to enhance their
profits,” he said.

Bill Skewes, executive director of the Wisconsin Utility Association,
said he did not think utilities are being gouged.

“I know it’s tempting to use this as a
political issue, but the rise in natural gas prices is not outside of
the law of supply and demand,” he said.

“Natural gas forms in pockets over petroleum wells and those
same resources were affected by hurricanes that disrupted supplies of
petroleum,” he added.

Last week, the U.S. Minerals Management Service said that 25 percent of
the natural gas usually sent from the Gulf Coast remains off line
because of hurricane damage.