Skyrocketing natural gas prices hurting deregulation efforts

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Skyrocketing natural gas prices hurting deregulation efforts The Associated Press 12/17/00 12:36 PM

DETROIT (AP) -- Michigan's deregulated natural gas industry was designed to make utility markets more competitive. Soaring natural gas prices, however, are having the opposite effect.

The reason: A three-year fixed-price agreement between the major natural gas suppliers and state regulators puts customer costs at a level competitors can't match.

Consumers Energy began a three-year test program in 1997, allowing up to 100,000 of its customers to buy natural gas from other suppliers. The utility, with the blessing of the Michigan Public Service Commission, fixed its prices at $2.84 per thousand cubic feet -- well above the prices some independent gas companies could offer.

More than 100,000 customers sought alternative suppliers in the first year and 84,000 in the second, said Jeff Holyfield, spokesman for Consumers Energy.

But demand for natural gas in power plants increased sharply across the country this year as prices shot up to about $8 per thousand cubic feet.

"I don't think there have been any (customers leaving) at all this year," Holyfield told The Detroit News for a Sunday story.

MichCon saw similar results after beginning a similar program in 1998, with prices fixed at $2.95 per thousand cubic feet.

"It's been very difficult for alternative suppliers to enter the market," said Fred Shell, vice president of public affairs for MichCon. "The economies just don't let them in."

Consumers Energy has lost millions of dollars by selling fuel at fixed prices. It took a $45 million tax write-down on gas purchases earlier this year. Its agreement with the Public Service Commission ends in April, when the full deregulation program begins.

Both Consumers Energy and MichCon said the unforeseen price hikes were an important lesson learned during the fixed price test.

"We'd anticipate that you would not see fixed prices in future policy," Shell said.

http://www.nj.com/newsflash/index.ssf?/cgi-free/getstory_ssf.cgi?g8830_BC_MI--NaturalGasPrices&&news&newsflash-financial

Copyright 2000 Associated Press.

-- Martin Thompson (mthom1927@aol.com), December 17, 2000


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