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Gas prices have quadrupled in two years

Delta businesses get ready for high utility bills

AROUND THE DELTA – While a severe winter has fueled higher natural gas prices around the nation, Delta businesses and industries are coughing up extra bucks to pay for increased gas bills.

But they’re not facing problems as catastrophic as companies in California, the first state deregulated in 1996, where the utility companies have not been allowed to pass along increased fuel costs to consumers and have found themselves in a cash-flow crisis unable to pay for power from surrounding states.

“Some states jumped into deregulation of power supply so fast and now they’re experiencing problems,” said Public Service Commissioner Bo Robinson. “I’m so very pleased we made the decision in May that it wasn’t in the public interest to deregulate at this time.”

This winter, the federal Department of Energy is forecasting a 40% spike in natural gas prices and a 29% rise in fuel oil. Strong demand during November and December, which the National Weather Service called the coldest on record, reduced gas stores to record lows, according to the Energy Information Administration (EIA).

“We planned ahead and contracted a while back to lock in prices for a year, so we’re not being seriously impacted at this point,” said George Duffee-Braun, vice president of finance at Brinton’s U.S. Axminster, a carpet manufacturer near Greenville.

Melinda Hood, spokesperson for Yazoo City-based Mississippi Chemical, said the company has cut back on production because of increased gas prices.

In early January, the EIA confirmed that gas storage levels at the end of December were 10% lower than the previous record low set in 1976. Natural gas storage accounts for nearly 20% of the natural gas consumed during the winter heating season.

However, the American Gas Association (AGA) announced earlier this month that storage levels were adequate to make it through the winter.

“Today, there is more natural gas held in underground storage…than has ever been removed from storage during the remainder of any of the last five winter heating seasons,” said AGA president David Parker.

That rosy outlook changed last week because of a record cold December, leaving less in storage because of increased demand.

“With almost three months of winter still to go, falling stocks have raised fears about the domestic supply situation, helping to elevate spot and future prices,” Parker said at the time. “The predominant reason for these sustained high gas prices was, and still is, uneasiness about the winter supply situation.”

During the summer, natural gas is used primarily for manufacturing and electric power generation. During the winter, total demand for natural gas, prompted by residential heating requirements, exceeds production and import capabilities.

Last summer was the first time natural gas prices have actually gone up, said James Bagley, general manager of Twin County Electric Power Association in Rolling Fork.

“Usually, it’s down in the summer and up in the winter,” he said.

Phil Hardwick, spokesperson for Jackson-based Mississippi Valley Gas, which supplies most of the Delta, said wholesale gas prices have gone up about four times over a two year period – from $2.17 per thousand cubic feet (Mcf) in January 1998, to $9.86 Mcf last December.

“These are unchartered waters,” Hardwick said.

It’s important for consumers to know that gas companies, like Mississippi Valley Gas, do not make an extra profit because of high natural gas prices, Hardwick said.

“Mississippi Valley Gas’ profit is based on its investment in pipe and equipment, and is strictly regulated,” he said. “The actual cost that

Mississippi Valley Gas pays for gas, with no mark-up or profit, is the cost billed to customers. Any profit is in the cost of delivering gas, not the cost of purchasing gas. At Mississippi Valley Gas, our responsibility is to make gas purchases to assure an adequate gas supply for all our customers.”

Despite fuel costs, gas-fired generation keeps growing, and many energy experts say it will put a considerable strain on the gas market. This spring, Kansas-city based Aquila Energy will begin construction on a $130-million, 320,000-kilowatt, gas-fired power plant in Clarksdale. The plant should be operational next June.

Last August, Charlotte, N.C.-based Cogentrix began commercial operation at its Batesville plant, a 800-megawatt natural gas-fired combined cycle facility. The company plans to build two $300-million, 800-megawatt electric generating plants utilizing natural gas in northeast Lowndes County, near Caledonia, and in Southaven. The Southaven plant should be operational by summer 2002. The Caledonia plant is scheduled to open three months later. Other companies, such as Cal-Pine Eastern and Enron, are building gas-fired plants in north Mississippi.

“I don’t think their gas usage will be that devastating,” said Public Service Commissioner Bo Robinson.

Compared to last winter, the EIA forecasts a 17% rise in gas demand through its six-month reporting period ending March 31, 2001. Prices are projected to remain high and storage levels low during the remainder of the heating season.

“There is nothing we can do until we get some natural gas back in our reserves and get some drilling going on,” said Fourth District U.S. Rep. Ronnie Shows.

Gas prices have been suppressed to the point that producers were not exploring for gas, Robinson said.

“Now, every rig available in Mississippi is standing upright and drilling to try to get some relief,” he said. “We’ve been so dependent on Arabian oil, but they’ve cut their supply and are cutting it again.”

Even if producers discover gas, it takes about two years for the gas to be developed and online, Robinson said.

“When Congress deregulated gas at the wellhead in 1992, it didn’t create any problems until now,” he said. “With increased demand, it will.”

Natural gas typically sets the price for electric power, Robinson said.

“Entergy Mississippi met with us in December to discuss a $141-million increase on gas supply,” he said. “That is a flow through. Keep in mind that we only regulate the transmission and delivery charge of gas.”

Gas demand has also increased because of new home construction, which is shifting toward the use of natural gas for heating and cooking.

“The demand for natural gas is not really coming from the residential sector,” said Hardwick. “The big demand comes from generating power at electricity plants.”

Contact MBJ contributing writer Lynne Wilbanks Jeter at lwjeter@yahoo.com or (601) 853-3967.

About Lynne W. Jeter

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