Sunday, January 28, 2001

Flaw drives gas prices up

Some would say that calling for the dismissal of the three Missouri Public Service Commissioners that voted for the latest Missouri Gas Energy rate increase is overreacting.

But two Kansas City lawmakers are calling for just that, even though it is highly unlikely that they can muster the two-thirds vote of the General Assembly needed to boot the commissioners.

It’s hard not to overreact. MGE won a 44 percent increase last week. That increase comes on top of a 65 percent raise awarded in November. Since January 2000, the gas company’s rates have climbed from 41 cents per 100 cubic feet used to 98 cents per 100 cubic feet used.

If the more than 100 percent increase in the rate wasn’t enough, a frigid December added a painful spike to the gas- heating costs. And there is talk that another adjustment will be needed. It is enough to get plenty of people to react.

The Public Service Commission will conduct a special audit to determine whether MGE made prudent decisions when buying natural gas for its customers. The state attorney general has been asked to investigate whether MGE suppliers were gouging Missouri customers.

Even the Office of Public Counsel, which represents the interest of utility customers, is willing to take part in a task force to study the problem. But a spokeswoman for the office warned The Kansas City Star that past reviews too often ended with reports collecting dust on some bureaucrat’s shelf.

Investigations, audits and studies may not be needed. A basic flaw in the regulation of MGE is easy to spot. The PSC regulates MGE. It doesn’t regulate MGE’s wholesalers. MGE can simply pass that cost on automatically.

Here’s the rub: MGE could have “hedged” against spiking gas prices by buying financial options early in order to protect the company and its customers from a season-peak spike in wholesale prices.

But when the PSC refused to promise that MGE would be able to recover any cost that might come from the hedging arrangement, MGE decided to drop that plan. Why not? The gas company knew that it would be able to pass on the wholesale price to customers.

If it turned out to be a bad decision, in other words, the customers would pay for the bad decision. The company wins either way.

Lawmakers need to find a way to inject an incentive for the utilities to get the best buy for their companies. Also, it might not hurt for the utility to bear at least part of the cost of making a bad business decision.

http://www.stjoenews-press.com/Main.asp?UID=181919&SectionID=81&SubSectionID=272&ArticleID=12588

-- Martin Thompson (mthom1927@aol.com), January 28, 2001