March 10, 2006

Daniel Ebert, Chair

Wisconsin Public Service Commission
610 N. Whitney Way
P.O. Box 7854
Madison, WI  53707-7854

Dear Chairperson Ebert:

            I was pleased to see that you are proposing that the Commission conduct a study and discussion of utilities’ natural gas purchasing strategies.  As you are aware, high natural gas prices this winter have hit hard the pocketbooks of many Wisconsin consumers.  While the utilities themselves generally do not profit from these price spikes, as they simply pass along only their increased costs, it makes sense to examine natural gas purchasing practices of these utilities to ensure that they are doing all they can to save their customers money.

            I am enclosing, for your information, a copy of a report my office released this week along with the offices of the Attorneys General of Iowa, Illinois and Missouri.  Our report concludes that the upward volatility of natural gas prices over the past few years cannot simply be attributed to traditional supply and demand factors.  Rather, there appears to be a very direct correlation between the exponential increase in financial market trading of natural gas and the dramatically increased price volatility.  We are recommending that measures be taken to make these markets more transparent, through increased reporting requirements, increased disclosure of positions in the markets and other reforms.

            You and I well understand that regulation of these markets is primarily a federal function.  However, I am convinced that there are actions that can be taken at the state level to improve our ability to insulate customers from the wild, upward fluctuations in price that we have seen over the past few years.  Examining the utilities’ purchasing strategies is an important first step in the process. Wisconsin consumers ought not to be charged more than is absolutely necessary for the cost of a vital necessity like the natural gas needed to heat their homes. Nor should they be expected as a matter of course to front the projected increased costs of natural gas, which projections are based on imperfect market data, only to be reimbursed months later when real costs don’t meet the price increases awarded to the utilities. Wisconsin consumers cannot be made involuntary investors in regulated utilities, nor should their funds be used to insulate the natural gas industry from the price surges for which consumers bear comparatively little responsibility.

            Please keep me informed of your efforts in this area and let me know how I can be of assistance.  Thank you again for your attention to this issue of vital concern to Wisconsin citizens.

                                                                        Very truly yours,

                                                                        Peggy A. Lautenschlager

                                                                        Attorney General

PAL:cjb

Enclosure

c:        Commissioner Mark Meyer