Utilities see OK to raise gas rates - Energy price spikes, demand seen driving 13% to 36% hikes

www.boston.com By Peter J. Howe, Globe Staff, 2/27/2003

Massachusetts homeowners and businesses using natural gas for heating are likely to see rates jump 13 to 36 percent in March and April, as the effects of soaring global energy prices, plummeting inventories, and heavy winter demand trickle down to utility bills.

Gas utilities including KeySpan Energy Delivery, Bay State Gas, and NStar Gas are asking state regulators for permission to raise rates starting Saturday, ranging from a 12.7 percent cost-of-gas increase for former Boston Gas customers now with KeySpan to a 35.6 percent increase for Bay State's 270,000 customers.

The local gas hike requests, which are likely to be approved by the state Department of Telecommunications and Energy, come as US crude oil futures soared to their highest prices since Iraq invaded Kuwait in 1990, hitting $37.70 a barrel yesterday for April delivery on the New York Mercantile Exchange.

Besides fears that a war with Iraq could disrupt supplies and the effects of an oil workers strike in Venezuela could linger, futures prices jumped on reports from the Energy Department that domestic inventories of oil, gasoline, and other fuels have dropped. Oil inventories are down 14 percent from a year ago and supplies of so-called distillates, including diesel fuel and heating oil, dipped below 100 million barrels for the first time since May 2000.

At the same time, bitterly cold weather in the Northeast and Midwest has raised natural gas demand sharply, causing storage inventories to drop 43 percent below last year's levels and 27 percent below five-year averages, according to Bloomberg News surveys. The Energy Department is widely expected to report today that US gas inventories are at their lowest level since May 2001.

The demand-supply squeeze has caused gas prices to jump about 40 percent this year and has caused the more volatile futures market prices to triple in the last 12 months. Because gas is used to produce roughly half the electricity generated in New England, soaring gas rates could begin to drive higher electric rates this spring and summer as well.

Massachusetts gas utilities filing for rate increases cited the national and global market trends.

''Weather is probably the single biggest factor, because usage is up, and we can only charge the customer what we pay,'' said KeySpan Energy spokeswoman Carmen Fields.

KeySpan owns the former Boston Gas, Essex Gas, and Colonial Gas. The new rates would raise the cost per therm - a unit of gas - used by Boston Gas customers by 12.7 percent, to 86.15 cents for March and April.

Essex rates would jump 18.9 percent, to 76.6 cents. Rates in Colonial's Lowell-Merrimack Valley territory would climb 16.9 percent, to 88.6 cents. And rates in Colonial's Cape Cod territory would rise 17 percent, to 88.02 cents. Those figures are for the cost of gas only and do not include fixed delivery and service charges. The typical homeowner uses 100 to 200 therms of gas for heating in colder months.

Bay State, which serves 61 Massachusetts cities and towns, would increase energy rates from 73 cents per therm to 99 cents, a 35.6 percent increase, according to spokesman Charles Moran. That would produce a total rate of $1.17 per therm, including delivery and service fees.

NStar, which provides gas service to 246,000 customers in 51 cities and towns as well as electricity to 1.1 million customers, also plans to seek higher gas rates, as will several smaller utilities around Massachusetts.

NStar spokesman Michael Durand said last night it is seeking to raise the cost of gas per therm from 70.7 cents to 89.4 cents. For typical NStar customers using 144 therms of gas for heating, hot water, and cooking, the new rate would raise their monthly bill by about $27 to $186, Durand said. Direct comparisons, however, are difficult because most customers use less gas in March and April than in January and February.

Some economists fear the soaring retail energy prices could become one more drag on an already weak US economy. Steven Wieting, a Salomon Smith Barney Inc. economist, said the current annual rate of total US consumer spending on gasoline, heating oil, and natural gas is $50 billion higher than it was a year ago and totals about 0.7 percent of disposable personal income.

''It will affect the consumer's capacity to spend and will affect sentiment,'' Wieting said.

Dwindling supplies sent oil futures as high as $1.18 a gallon in New York trading yesterday, a 25-year record. Heating oil supplies on the East Coast, which accounts for about three quarters of US heating oil use, fell 16 percent last week to their lowest levels since May 2001.

Regulators at the Commodity Futures Trading Commission, which polices US energy futures markets, yesterday said they have increased ''floor surveillance'' at New York trading pits but found no evidence of market manipulation driving soaring futures prices.

''There was nothing in that [surveillance] that gave us any pause or gave us any feeling that there was any sort of manipulation taking place,'' Michael Gorham, director of the CFTC's market oversight division, told Reuters. Gorham said increases appear to be explanied by cold weather, lower inventories, and the threat of war with Iraq.

Peter J. Howe can be reached at howe@globe.com. Material from Globe wire services was used in this report.

This story ran on page C1 of the Boston Globe on 2/27/2003.