NY. to force gas users to stockpile oil

Fair use for educational/research purposes only!

Source: The Providence Journal Publication date: 2000-08-24

* Some New England states, though not Rhode Island, are considering similar stockpiling programs in case a severe winter makes alternate fuels very expensive for "interruptible customers." ***

NEW YORK - New York state regulators are poised to require more than 6,000 commercial natural-gas users to stockpile at least a week's supply of alternate fuels to avoid shortages that sent heating bills soaring last winter.

Some New England states, but not Rhode Island, reportedly are considering similar programs.

The New York Public Service Commission expects to issue the requirements this week for a class of gas users including hospitals, apartments, manufacturers and prisons, which obtain discounts of up to 50 percent by agreeing to have their gas service turned off when non-discount customers need the fuel.

Lulled by two mild winters, many of these so-called interruptible buyers assumed last winter that alternate fuels would be available, the commission said. But heating oil, the main alternative, was in short supply, and when the interruptible gas contracts kicked in, the buyers had to bid for heating oil against the fuel's regular customers, and prices soared.

A similar scenario occurred throughout New England last winter.

Elia Germani, chairman of the Rhode Island Public Utilities Commission, said the state was not considering a program similar to New York's.

James Grasso, a spokesman for Providence Gas, said the utility does not require its interruptible customers to stockpile an alternate energy supply.

But Grasso added that it was his understanding that utility commissioners in other New England states are discussing strategies on how to deal with this problem this winter.

Providence Gas has 56 interruptible customers but many are high- volume users of natural gas.

There have been numerous warning signs that supplies of heating oil could be tight this winter because inventory levels are low and crude prices remain very high.

Inventory levels for oil dropped 2.7 percent from last week and are now the lowest in 24 years. The news yesterday helped push prices for crude oil up 5 percent.

President Clinton last month announced the creation of a regional reserve to store 2 million barrels of home-heating oil in the Northeast that would be available if a shortage occurred and prices spiked as they did last year.

The U.S. Department of Energy announced last week that it awarded three contracts and that 1 million barrels would be stored in New Haven by Equiva Trading Co. and Morgan Stanley Capital Group. Amerada Hess Corp. will store the remaining 1 million barrels in Woodbridge, N.J.

The arrangement would appear to satisfy one concern of Rhode Island heating dealers, who wanted to be close geographically to the reserve.

The weather was unusually mild last winter until mid-January, when temperatures dipped severely for two straight weeks in the Northeast. When the temperatures plunged, demand picked up for heating oil and natural gas, and the interruptible contract clauses were triggered. Gas customers with those contracts had to activate heating systems using alternate fuels.

Heating-oil futures on the New York Mercantile Exchange, representing wholesale prices, shot up 47 percent in the last three weeks of January to $1 a gallon by Jan. 31, a nine-year high.

Wholesalers soon passed along their higher costs to consumers. From Jan. 10 to Feb. 7, residential customers in New York saw their heating oil prices climb, from $1.20, to $2.02 a gallon, a 68 percent increase, according to the New York State Energy Research and Development Authority.

In Rhode Island prices also topped $2 a gallon.

Gas companies' reaction to the commission's decision has been mixed.

Consolidated Edison spokesman Joseph Petta said New York City, home of 1,150 of the utility's 1,243 interruptible gas customers, already requires interruptible customers to maintain a 10-day supply of alternate fuels. "We believe [the commission's order] will give us an even greater ability to serve our customers and ensure a more reliable gas supply in the coming winter," he said.

But Steve Adams, manager of gas pricing, regulation and strategy for Binghamton-based New York State Electric and Gas, said he doubted that the alternate-fuel storage requirements would eliminate heating- oil price surges: as soon as companies begin drawing down their storage tanks, they will buy more fuel to replenish them, he said.

Furthermore, "we think that it will cause many customers to switch to an alternate fuel away from natural gas for a longer time," Adams said. "We think this really is in favor of the oil companies."

http://cnniw.yellowbrix.com/pages/cnniw/Story.nsp?story_id=13177119&ID=cnniw&scategory=Energy%3AOil

-- Martin Thompson (mthom1927@aol.com), August 25, 2000