Natural gas users angered by rapid series of rate hikes Source: The Providence Journal Publication date: 2000-09-27 Arrival time: 2000-09-28

* Valley Resources asks for a second 15-percent increase; Providence Gas is expected to seek a 23-percent hike today. * * *

PROVIDENCE - Valley Resources yesterday told regulators that it needs to raise rates for natural gas a second time in a month. A typical heating customer would pay about 15 percent more for natural gas on top of a 15-percent increase already approved earlier this month.

Anger over the back-to-back rate hikes erupted yesterday at a public hearing before the state Public Utilities Commission.

Consumer advocates charged that the company did more to protect its stockholders than customers as prices rose and it failed to lock into a contract to protect the company's 64,000 customers in northern and eastern Rhode Island.

"Wasn't this decision colossally imprudent?" said Gregory L. Benik, a lawyer for Osram Sylvania, a Central Falls company that estimates it will pay $900,000 more for gas this winter. Company officials warned that the soaring costs could put 450 jobs at the plant at stake.

"No, it was not imprudent," replied Alan Roy, Valley's assistant vice president for gas supplies. He said the company's prices to its customers historically have been lower than those of many other gas companies in the region.

But Roy acknowledged that the utility hesitated for months in making a decision on locking into prices because it believed rising prices would fall.

Today, Providence Gas defends its request before the PUC for a previously reported 23-percent rate hike that affects 160,000 customers.

Tomorrow, the PUC hears Narragansett Electric's 10-percent rate increase proposal that will affect 460,000 customers. Narragansett filed that rate plan earlier this month after commissioners angrily refused to approve a smaller increase. Commissioners said the company was losing so much money from rising energy prices it paid for generating power that the rate hike was not enough.

Narragansett's rates have already risen 8.8 percent since June.

On Friday, the PUC will vote on the Narragansett and Providence Gas rate increases. It may also discuss Valley's management practices, but not the rate hike, details of which will not be filed until later that day.

All of those sessions begin at 10 a.m. at the PUC's offices at 100 Orange St.

Soaring energy prices have become an international concern. While much of the focus has been on oil, the price of natural gas in the United States has tripled in two years and is at historic highs.

Yesterday Valley Resources was before the PUC to further justify the rates.

But even as the hearing was beginning, Roy, the assistant vice president of gas supply, offered more bad news for customers of Valley's two local utilities, Valley Gas and Bristol & Warren Gas Co.

Roy said Valley, which had already signaled that a second rate increase would be needed, now had concluded that the request should be filed quickly. Prices have risen faster than anticipated, Roy said. He could not say exactly how much rates will go up, but he said a heating customer who had been expected to pay an additional $125 for the winter season will now probably have to pay about $250 more.

Roy was before the commission for several hours and at times the exchanges became testy.

Bruce R. Oliver, a consultant for the state Division of Public Utilities and Carriers, questioned why Valley Resources did not lock in natural gas prices when it had numerous opportunities in the past nine months.

Roy said the company knew that the PUC wanted Valley to negotiate a two-or three-year contract with its suppliers. He said the company had studied the market daily since February. But he said as prices continued to rise, executives were convinced that the rally could not continue.

In hindsight, Roy said, they were wrong.

"Obviously, if I would have known what was going to happen, I would have locked-in in February, I would have locked-in in March, I would have done it in April," he said. "Every month we were chagrined to see that the price was up. There was no letup."

Both "psychologically and intellectually," said Roy, the continued price increases "were difficult to swallow."

Oliver and Benik, the lawyer for Osram Sylvania, accused Valley of "playing the spot market."

Roy conceded Valley relied on the spot market, which he said has saved customers money in recent years. But he did not like the phrasing of the questions. "I'm not playing anything, this is a business," he said at one point.

As recently as three weeks ago Valley was ready to sign a contract with a supplier, but then prices went up again, making the deal less favorable.

Benik produced a 1997 memo in which a consultant hired by Valley urged the company to stop relying heavily on the spot market and to develop a risk-management plan. Roy admitted those recommendations were not followed.

Oliver suggested another reason for Valley's avoidance of long- term contracts. In written testimony, he wrote: "The company has been more inclined to pay rising spot market prices for natural gas than to take a risk that regulators might subsequently judge a locked-in or capped price for gas supplies to be too high."

If that happened, he said, the PUC could have ruled the decision was imprudent and not allowed it, which would have been financially costly for Valley's stockholders.

Commissioner Kate Racine wondered if that was the problem, since the company is a regulated utility and by law is guaranteed a profit except when it makes an "imprudent" decision.

Roy denied that was a factor in his decision-making.

Valley was a publicly traded company until last week when it was purchased by a much larger publicly traded company, Southern Union Co., of Austin, Texas. Southern Union this week is scheduled to also complete its purchase of Providence Energy, the parent of Providence Gas.

Late in the day, officials of Osram Sylvania said that its natural gas prices were rising from $2.1 million to $3 million for the year. Company officials also suggested that Valley had been imprudent in not moving quickly to control prices.

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Oliver, the consultant for the utilities division, warned that prices are too high now to sign a long-term contract. He urged the PUC to consider more long-range steps to avoid a repeat of Valley's failure to find a way to reduce the risks customers now face this winter.

-- Martin Thompson (mthom1927@aol.com), September 28, 2000