Natural gas prices headed down, but maybe not electric rates

John Howell
Posted 9/17/15

By JOHN HOWELL

Go figure. As the price of natural gas is declining – National Grid announced last week about a 10-percent drop in costs of a residential customer using gas to heat their home – …

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Natural gas prices headed down, but maybe not electric rates

Posted

By JOHN HOWELL

Go figure. As the price of natural gas is declining – National Grid announced last week about a 10-percent drop in costs of a residential customer using gas to heat their home – and natural gas is being used more and more to generate electricity, shouldn’t the cost of electricity also go down?

It’s not looking that way, according to National Grid spokesman David Graves.

In an interview Friday, Graves said it is more likely the company will ask for an increase in its standard offer later this fall. If approved by the Public Utilities Commission, the electric rate would take affect in January.

So how do lower natural gas costs equate to higher electric rates if natural gas is used to generate more than 40 percent of the electricity used by Rhode Islanders?

Graves reminds that the requested electric rate would apply to the first six months of the New Year.

National Grid buys electricity and passes the cost along to the consumer. It does not earn a mark up on the cost. It makes its money on the transmission of electricity, which is separately identified in electric bills and also regulated by the PUC.

Graves explained the cost of generating electricity is projected to increase in the winter months because of the increased demand for natural gas and constraints in the system of delivery pipelines to this region. As residential and commercial gas users are given priority over generating plants, he said, when cold weather causes a spike in natural gas usage, generating plants are forced to shut down or convert to using fuel oil to continue running. This jacks up the cost of electricity.

It was that projected cost increase in the winter cost of electricity that prompted National Grid to ask for an electric rate increase of about 25 percent last year at this time. The proposed rate increase would have applied to the first six months of 2015.

The PUC eventually approved the increase, but to lessen the impact on the customer spread it over the full year even though electric rates traditionally drop for the second half of the year starting in July.

Graves said National Grid would file the proposed electric rate by Oct. 15.

As for a reduction in national gas rates, a press release issued last week said customers could expect to see a 9.6 percent reduction in their bill starting Nov. 1 if the lower rate is approved by the PUC. That translates into a $120 a year savings for a customer using 846 therms. The company delivers natural gas to 257,000 Rhode Island residential customers.

When coupled with a natural gas price reduction that went into effect on Nov. 1, 2014, National Grid ’s Rhode Island customers will be paying approximately 14 percent less than what they paid through most of 2014, according to the company.

The reduction in cost was touted by Timothy F. Horan, president of National Grid in Rhode Island.

In a statement, he said, “We know the winter season can pose an extra challenge when it comes to energy costs, so we’re very happy to be able to pass on the savings created with the availability of lower cost natural gas. Domestic natural gas is essential to providing the mix of energy sources that is essential to our region’s future growth and prosperity.”

Yet still, it would seem, lower gas costs should also result in lower electric costs.

Asked if National Grid is buying electricity at lower costs than projected a year ago, Graves pointed out that, yes, costs are lower at this time of year. He thought it possible that National Grid is collecting more in payments for electricity than it is paying out. If that is the case, he said the additional revenues would be considered in projecting the rate going forward. In other words, lower natural gas costs could impact electric rates after all.

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