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News Release
Natural Gas Supply Costs
September 29, 2000 (2000-048)
Contacts: Ron Eachus, Chairman, 503 378-6611; Roger Hamilton, Commissioner, 503 378-6611; Joan H. Smith, Commissioner, 503 378-6611; Bob Valdez, Public Information Officer, 503 378-8962
Salem, OR- All three investor-owned natural gas companies, Northwest Natural, Cascade and Avista, face wholesale natural gas cost increases that are beyond their control. The requests, known as "purchase price adjustments" are filed each year and reflect both increases and decreases in a utility's commodity costs.
The Public Utility Commission does set the regulated retail rate. The price at the production supply (wholesale) level is not regulated.
Natural gas commodity prices have essentially doubled over the past year for a number of reasons. Oregon used to benefit from being the primary buyer of surplus gas from Canada. However, a pipeline was recently built from Canada to the US Midwest market, which has increased demand for Canadian gas. We now compete with them for Canadian surplus gas.
Increasingly, electric companies are relying on gas-fired turbines to meet peak power needs. And the unusually hot summer in the West and Southwest, especially California has increased demand.
In addition, low prices over the last few years have discouraged natural gas exploration and production. When production increases, the price should fall. However, it may take between 18 months to two years before wholesale energy costs decline.
Annual Purchased Gas Cost Adjustments
The Public Utility Commission does hold companies accountable for costs they can control. However, the costs of gas in an open market are not under control of the company. Consequently, the Commission has adopted a process for an annual adjustment, called the
Purchased Gas Adjustment, to reflect the expected costs of purchasing gas for the next year. In these filings the utility staff examines actual costs, determines whether they are reasonable, and determines whether the company has done all it can to get the best deal.
Purchased Gas Cost accounts and their annual adjustments are part of a general class of regulatory tools known as fuel adjustment clauses. Fuel adjustment clauses permit a timely adjustment of rates during a period of rapidly changing fuel costs, when utilities may have to pay a higher or lower amount for fuel than expected. The PGA allows utilities to pass-through known and measurable gas costs to ratepayers. The purchased gas cost account is intended to ensure that neither utilities nor ratepayers are harmed by -- or benefit from -- variances between actual recorded costs for the year, and gas costs authorized in rates from the preceding year. The PGA operates by matching the actual cost of buying gas for the year with the forecasted cost of gas. The companies make no additional profit from these rate increases.
The adjustment formula was developed in a proceeding in which the companies, PUC staff and customer groups participated. It includes incentives for companies to be prudent and efficient in buying gas. As an incentive to make good gas purchases, each gas company shares a percentage of revenues with ratepayers. This sharing determination, along with the annual spring earnings review, provides the regulatory oversight of gas operations.
Action Customers Can Take
The Commission and the Oregon Office of Energy are recommending consumers consider a variety of measures to lessen the impact of the rate increase, including:
  1. Contact the gas company to set up an equal payment plan to spread high winter bills over a 12-month period;

  2. Turning the thermostat down can save 3% for each degree of reduction. A programmable thermostat that automatically reduces heat at night or while the house is unoccupied can lower heating bills by 5 to 10%.

  3. An energy audit by the utility that provide a customers heating can help mitigate the impact of the increase this winter and for years to come. Utilities are required to provide free energy audits. They also provide incentives such as rebates or loans, for recommended measures.

  4. Sealing cracks, gaps and other places where air leaks can generally result in a 10% heating and cooling savings.

  5. A full insulation job generally results in up to 30% savings on a heating bill.

  6. The Oregon Office of Energy offers state tax credits of up to $250 for residents who have an office-certified contractor seal furnace ducts. As much as 25% of the heat in a forced-air heating system may be lost through ductwork leaks.

  7. Updating low-efficiency furnaces with higher efficiency models can also make a difference. Some utilities offer a rebate for doing so. For example, Northwest natural offers a $200 rebate for a high-efficiency furnace.

  8. Making sure the existing furnace operates efficiently can make a difference as well. Change or clean the furnace filter once a month during the heating season if needed. And a tax credit is available for testing and servicing gas furnaces if done by contractors certified by the Office of energy.
A new brochure from the Office of Energy has more ideas for reducing energy bills at home. It can be obtained by calling 1-800-221-8035 or visiting www.energy.state.or.us.
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