Another rate boost sought on natural gas By Bruce Mohl, Globe Staff, 12/20/2000

ore than 700,000 natural gas customers in Massachusetts are in for another price shock, as Keyspan Energy Delivery is preparing to push for a ''substantial increase'' in rates - the second hike in just two months - to cover the spiraling cost of gas.

''The cost of fuel has gone so high that we're grossly undercollecting,'' said Keyspan spokesman Michael Connors. He said the exact size of the new rate hike was still being worked out yesterday, but added: ''It's going to be a substantial increase, there's no question about that.''

Keyspan, which includes the former Boston, Essex, and Colonial gas companies, wants to raise its rates starting Jan. 1. The increase is likely to win approval from state regulators since it represents a pass-through of the higher costs Keyspan is paying for the gas it distributes. Delaying the price increase would only mean consumers pick up the tab later, with interest costs added.

Bay State Gas already has asked state regulators for a Jan. 1 rate increase that would boost the monthly bill of its customers by 11 percent. Two sources familiar with Keyspan's situation but not privy to its numbers said the Keyspan rate request is likely to be substantially higher.

The 730,000 Keyspan customers in Massachusetts are already being squeezed by higher prices. Winter rates that kicked in Nov. 1 are running anywhere from 16 percent to 36 percent higher than last winter, depending on the utility.

A typical customer in the Boston Gas territory using 160 therms a month is currently paying a bill of about $172, up $34, or 24 percent, over last year. The current cost of gas in the Boston Gas territory is 68.5 cents a therm. It is that component of the customer's bill that is likely to rise substantially with Keyspan's new filing.

In a year when most of the media and politicians have focused on skyrocketing heating-oil prices, natural gas customers will now find themselves paying the most to heat their homes.

Connors said Keyspan is hoping the rate increase will be temporary. If gas prices fall early next year, he said, Keyspan would quickly seek approval to lower rates. The company is in the midst of a high-profile campaign to convert heating-oil customers to gas. Higher prices will make that campaign, which features free furnaces and boilers, far more difficult.

Keyspan officials say they were caught off guard by the continued, rapid rise in natural gas prices.

''Nobody could have called this,'' Connors said. ''The market is reacting in a way that economists don't understand. And the worst-case scenario is happening.''

Natural gas prices have jumped more than fourfold over the past year largely because the supply of gas has not kept pace with demand. Key factors in the higher demand have been the strong economy, heavy use by electric utilities, and colder-than-normal temperatures across much of the United States.

''The market is just going wild,'' said George Yiankos, director of the gas division at the Massachusetts Department of Telecommunications and Energy. ''I've never seen anything like it. It's three or four times the prices we saw last winter.''

Normally, gas utilities in Massachusetts adjust rates twice a year, setting off-peak summer rates April 1 and peak winter rates Nov. 1. But because of spiraling wholesale gas prices, Keyspan already sought and won a second adjustment of the off-peak rate in July and is now seeking a second adjustment of the winter rate for Jan. 1.

Officials in the heating-oil industry, who have been stung by the switch-to-gas campaigns of the gas utilities, were quick to pounce on the higher gas prices as a warning signal that the push for more conversions may be unwise.

Michael Ferrante, president of the Massachusetts Oil Heat Council in Wellesley, said the gas increases could yield prices that would be the heating-oil equivalent of $2 per gallon. Heating oil prices are currently averaging $1.52 a gallon, according to state surveys.

''What are we trying to do here, convert homes to a higher-priced fuel and one with tremendous price volatility?'' asked Ferrante.

This story ran on page A01 of the Boston Globe on 12/20/2000.

http://www.boston.com/dailyglobe2/355/nation/Another_rate_boost_sought_on_natural_gasP.shtml

-- Martin Thompson (mthom1927@aol.com), December 20, 2000