Pipeline &
Gas Journal
April issue 2000:
Customer Savings Of
$7.5 Million Projected
Opportunities created by the deregulation of the natural gas industry coupled with lower gas prices are leading to a 9 percent reduction in the price paid by Berkshire Gas residential heating customers for natural gas during the winter months.
These savings are reflected in the cost of gas component on residential customer’s bills. This factor is updated twice annually, on May 1 and Nov. 1, to reflect changes in the market prices for natural gas supplies. The cost of gas component for Nov. 1 was $.485 cents per hundred cubic feet of natural gas. Given savings realized both in the purchase of natural gas and as a result of initiatives taken by the company to maximize the return on its gas supply assets, the company sought special permission from the Massachusetts Department of Telecommunications and Energy (DTE) to begin passing these savings on to its customers by lowering the Cost of Gas component effective Dec. 1. The new cost of gas is $.462 per hundred cubic feet of natural gas.
These savings are due in large measure to benefits gained from renegotiating major gas supply contracts between the company and Tennessee Gas Pipeline, owners of the interstate natural gas pipeline serving the company’s market area, as well as reductions in the market prices for natural gas. Additionally, the company has entered into a contract with an asset manager, which will also yield considerable savings for the consumer.
Lower Gas Prices
The average commodity prices for natural gas have decreased by approximately 7.4 percent since November. Pricing forecasts expect the trend toward lower natural gas prices to continue. By comparison, the commodity price for home heating oil on the New York Mercantile Exchange (NYMEX) has increased steadily over the last 12 months. At the end of November, the market price for home heating oil had more than doubled from a year ago, according to statistics compiled by the NYMEX.
Contract Renegotiations
For more than a year, the company has been actively working with Tennessee Gas Pipeline to renegotiate its pipeline delivery contracts. The company also terminated several supply contracts, replacing them with lower cost gas supplies. As a result of these efforts, new contracts became effective in November, which will yield annual savings of $815,000 in the first year. Savings will increase to $1.3 million a year through the life of the contracts, which expire in October 2004. These savings will be applied to the cost of gas component on consumer bills for the term of the contracts effectively reducing the cost of energy to consumers.
Asset Management
In an effort to encourage the development of competitive commodity markets for natural gas, Massachusetts regulators, along with marketers, utilities and other interested parties, have been working cooperatively to define the ground rules for competition in deregulated markets. As part of this effort, natural gas utilities have been able to solicit, via competitive bidding, offers for the management of the utilities’ gas and related capacity resources to unregulated marketers with customers receiving the benefit of fees paid to the utility under such arrangements.
Known as asset managers, the successful bidder becomes responsible for the management of the utilities’ interstate gas supply, transportation and underground storage assets. The management of these assets assures the continued reliability of supply to utility customers while at the same time allowing the asset manager to utilize and mix these supply assets for the benefit of their other customers.
On July 30, 1999, Berkshire Gas issued a request for proposals from prospective asset management firms. The contract for management of the company’s supply assets was awarded to Energy USA-TPC Corporation, an industry leader in asset optimization, gas storage technology and natural gas marketing. Headquartered in Houston, Energy USA-TPC is owned by NiSource, Inc. Under the asset management contract, the utility expects to realize substantial savings for the period beginning Nov. 1 and ending Oct. 31, 2000. The contract is subject to renegotiation and extension at that time. These savings are also being passed along to customers through the cost of gas component on their monthly bills.
Combined, these savings and revenue from the Asset Management contract will total some $7.5 million over the next five years, all of which will be used to lower customer’s natural gas bills.
In commenting on the rate reduction, Berkshire Gas President & COO, Robert M. Allessio said, “As a company, we have embraced deregulation as a means to enhance our competitive position while providing our customers with the best possible service at the lowest possible cost. Capitalizing on opportunities created by deregulation has made it possible to reduce gas supply costs, achieve greater efficiencies and in turn bring down energy costs for residential and business customers alike.”
The company’s last base rate filing was approved by the DTE in 1993. It has not increased its base rates since that time. A subsidiary of Berkshire Energy Resources, Berkshire Gas is a natural gas utility serving 34,000 customers in western Massachusetts. It has been meeting the energy needs of customers in the region for 145 years. P&GJ