You were asking about CMS last week. Ran across this article in the morning paper the other day. Thought you might find it interesting.
Prices Rile Open Utility Market
Dec 17, 2000 - The Detroit News
DETROIT -- Soaring natural gas prices are playing havoc with efforts to make Michigan's utility markets more competitive. Instead of drawing new companies into the area, Michigan's deregulation program is having the opposite affect.
The reason: A three-year fixed-price agreement between the major natural gas suppliers and state regulators puts customer costs at a level competitors can't match.
Consumers Energy began a three-year test program in 1997, allowing up to 100,000 of its customers to buy natural gas from other suppliers. The utility, with the blessing of the Michigan Public Service Commission, fixed its prices at $2.84 per Mcf, or thousand cubic feet -- well above the prices some independent gas companies could offer.
Soon customers began buying lower-priced gas from competitors.
More than 100,000 customers sought alternative suppliers in the first year and 84,000 in the second, said Jeff Holyfield, spokesman for Consumers Energy.
But this year demand for natural gas in power plants increased sharply across the country, as prices shot up to about $8 per Mcf.
"I don't think there have been any (customers leaving) at all this year," said Holyfield.
MichCon saw similar results after beginning a similar program in 1998, with prices fixed at $2.95 per Mcf.
"It's been very difficult for alternative suppliers to enter the market," said Fred Shell, vice-president of public affairs forMichCon. "The economies just don't let them in."
Consumers Energy has lost millions of dollars by selling fuel at fixed prices. It took a $45-million tax write-down on gas purchases earlier this year. Its agreement with PSC ends in April, when the full deregulation program begins.
Consumers Energy is set in 2001 to make deregulated competition available to 600,000 natural gas customers with yearly increases until its entire 1.6 million customer base is covered in April 2003. But with only 180,000 switched so far, the company is well behind its forecasted 300,000 for the three-year test program.
Both Consumers Energy and MichCon said the unforeseen price hikes were an important lesson learned during the fixed price test.
"We'd anticipate that you would not see fixed prices in future policy," Shell said. |
