Jun 14 - Providence Journal

Natural-gas costs have been gradually falling over the past five months, after being pushed to record highs last fall by Hurricanes Katrina and Rita.

That drop has led to rate reductions for gas and electricity service for residential customers in many states, including nearby Massachusetts.

But Rhode Islanders have yet to enjoy a price break. And neither New England Gas nor National Grid plan to lower their rates, even though customers are now paying more than what's needed to cover the utilities' wholesale costs.

By the end of this month, New England Gas estimates that it will have collected from its customers about $26.9 million more than it needs to pay for its customers' gas.

By the end of this year, National Grid expects to overcollect from its customers $48.4 million.

No one is accusing the utility companies of doing anything illegal or shady. Neither company profits from buying electricity and gas for their customers. They provide monthly reports to the state Public Utilities Commission that detail revenue and cost forecasts. Customers will eventually be made whole, with interest, on any money the utility companies owe them.

But the decision not to seek rate decreases with expected overcollections being so high is a shift from past practice. Historically, utility companies in Rhode Island sought rate changes anytime they projected a balance of $15 million in over- or under- collections.

And leaving rates unchanged means that customers who may be struggling to pay utility bills today won't see the benefits of lower energy costs until sometime in the future.

In Rhode Island and across the nation, a combination of factors - - hurricane disruptions, limited production capacity and growing demand -- pushed energy prices to record levels last fall and winter.

National Grid raised electricity rates in October and January, adding $18.18 to the bill of a typical customer who uses 500 kilowatt-hours of electricity a month. That 29-percent increase pushed the typical monthly bill to $80.94.

New England Gas increased its rates by 17.3 percent on Nov. 1, adding an extra $20.83 a month to a typical heating customer's bill. A typical heating customer now pays $1,701 annually for gas, or about $142 a month.

But since then, the wholesale cost of natural gas has fallen. According to the U.S. Department of Energy, the average price of 1,000 cubic feet of natural gas in the United States was $8.72 in March, down 18 percent from $10.64 in January.

That prompted rate reductions in many states. The average retail price of natural gas across the United States fell 12.2 percent from January to March, according to the Department of Energy. It went from $14.92 per million BTUs to $13.10 per MMBTUs during that period.

But the utility companies and regulators in Rhode Island have held off reducing rates because of concerns that the highly volatile nature of the energy markets could quickly swing upward, erasing any overcollection.

Late last month, National Grid withdrew a request it had made in March to reduce rates by 3.9 percent.

". . . [G]iven the difficulty of predicting the reconciliation balance with a reasonable degree of accuracy by more than two or three months, the best course of action at this time is to maintain a stable standard offer service rate at the current level," National Grid said in a filing May 31 to the PUC.

"One of the clear messages that was communicated to us by regulators," said Chris Medici, a spokesman for New England Gas, is they don't want "these wild fluctuations in pricing and rates."

Rate stability has been the goal of many regulators, here and elsewhere. It helps customers have some sense of how much money to budget for utility costs.

And averaging costs over time helps shield customers from price spikes in the energy markets.

But it has its downsides. One school of thought says that averaging prices buffers customers from the ups and downs in the energy markets. It mutes the "price signals" the market is sending.

In other words, if prices spike, utility customers tend to cut back on their energy usage, and vice versa. But if those prices remain steady, usage will tend to stay the same.

And, of course, when energy costs decline, customers may end up paying artificially high rates, at least temporarily.

Large industrial customers often listen closely to those price signals, said John Farley, executive director of the Energy Council of Rhode Island, a group that lobbies on behalf of the largest energy users in the state.

Those customers are typically in a position to shop around for a better deal from another energy supplier, and they need an accurate benchmark in which to compare prices, he said.

About today's gas rates, Farley said "I think typical businesses would like to see the price come down because [costs] have come down and they'd like to see a little of that savings."

But changing rates as often as market prices change would hurt residential customers, said Paul Afonso, the former chairman of the Massachusetts Department of Telecommunications and Energy.

"We can't put residential [customers] on that kind of volatility," he said.

That state has struck a compromise, he said. A natural-gas company is required to file for a rate change anytime collections are 5 percent under or over gas costs.

But rates do change more frequently in Massachusetts. For example, New England Gas lowered rates for its Fall River customers in February and again in March. But higher energy prices caused the company to raise rates in May.

tbarmann@projo.com / (401) 277-7369

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