Utilities: Analyst Warns Market Changes Could Raise Local Costs 300%
Could local utility customers be facing a massive increase in the cost of natural gas next year, the same way they saw electricity prices shoot up this year?
One natural gas analyst believes local prices for natural gas will climb 300 percent, and he’s using a memo from San Diego Gas & Electric Co. to make his case. But SDG & E; officials disagree.
Michael Boyd, analyst with Tulsa, Okla.-based Energy Strategies Inc., spoke of the shake-up the local market will experience after April 1, when SDG & E; gets out of the “non-core” natural gas market.
The change will affect small businesses using more than 10,000 therms of natural gas a month, such as dry cleaners and restaurants. Residential customers remain core customers for the utility, while many large businesses, such as shipyards and the Navy, have selected other energy service providers for natural gas, Boyd said.
As SDG & E; gets out of the non-core market, small businesses have the option of selecting a new natural gas provider. Whatever provider they choose, SDG & E; will remain the delivery service, in a set-up similar to the deregulated market for electricity, he said.
Small Businesses Affected Most
But for customers who stay behind, the price for natural gas could shoot up threefold, as marketers charge SDG & E; more , another parallel with the electrical market, Boyd said.
To avoid higher costs for natural gas, small-business customers can first select an alternate energy service provider, then enter into long-term contracts for lower rates.
This may be a hassle for small-business owners, but it could be worth it to avoid the higher prices that may result from staying with SDG & E; and price increases later.
“They don’t want to mess with this small portion of their business,” Boyd said. “But for a small mom-and-pop store, it’s going to have incredible impact. And the gas marketers will take advantage of the fact that they’re not sophisticated, and absolutely take them to the cleaners. And SDG & E; will continue to be the bad guy.”
To state his case, Boyd points to an undated memo with the title “You Need a Gas Energy Service Provider, SDG & E; Exits Noncore Gas Procurement Market.” The memo was sent to all of SDG & E;’s non-core customers earlier this year.
Core Vs. Non-Core Customers
The memo outlines the options non-core customers have in switching, then goes on to say that non-core customers who choose to stay with SDG & E; after April 1 will become core customers and pay a higher rate.
“Average core transportation rates ($0.315/therm) are approximately 300 percent higher than average noncore transportation rates ($0.117/therm). SDG & E; will work with its non-core utility-procurement customers to help them make the transition to gas (providers),” the memo said.
But SDG & E; disagrees. The memo doesn’t mean quite what Boyd says it means, said Ed Van Herik, spokesman for Sempra Energy, parent company of SDG & E.; First, SDG & E; defines non-core customers as those using 20,800 therms of natural gas or more per month. There are only 179 such gas meters that qualify in the entire service territory, Van Herik said.
Of these, about 60 customers, representing about 80 percent of the non-core load, already purchase their natural gas from another energy service provider. That means there are only a handful of customers affected by the change, he said.
Second, this is a move that’s still on the table before the California Public Utilities Commission. It may or may not happen on April 1, he added.
Finally, Van Herik said, the only thing that will happen is that non-core customers will then pay core rates for the delivery of natural gas. Only the cost of the delivery of natural gas will go up, not the commodity itself.
Van Herik explained the 300 percent jump in the cost of delivering natural gas is the result of the discrepancy between how core and non-core customers receive their natural gas, he said.
Core customers are the consumers SDG & E; is required by law to serve. That includes residences, small businesses and some large customers who choose to be core customers. Non-core customers are largely consumers who receive natural gas on an as-available basis, Van Herik said.
Non-core customers are charged a lower rate for delivery since they don’t have to pay for SDG & E;’s infrastructure, while core customers do, he said.
SDG & E; is one of the last remaining utilities to provide natural gas to its non-core customers. Once the utility makes its transition, non-core customers who choose to remain with SDG & E; will be moved to core service and pay the higher rate, Van Herik.
Businesses selecting an alternate natural gas provider will continue being considered as non-core customers, he said.
Van Herik refused to speculate what the commodity charge for natural gas will be after April 1. He is predicting the cost of natural gas will be higher this winter.
