Texas groups call for protection against high gas prices


By Ann de Rouffignac
OGJ Online Staff

HOUSTON, July 19, 2001 — When the Texas electricity market opens in 2002, Reliant HL&P customers' bills can increase with gas prices, but won't necessarily fall along with gas prices, warned representatives of cities and consumer and industrial groups.

Hearings that will determine the fuel factor to be incorporated into the maximum electric rate Reliant HL&P can charge in January, the so-called "price-to-beat," are taking place in Austin July 18 and 19.

The city of Houston asked the Texas Public Utility Commission for "assurance" Reliant's ratepayers will not pay rates based on high natural gas prices, even when gas prices fall.

"In setting the fuel factor, the commission should provide some guidelines which assure Reliant's ratepayers that they will not have to pay rates based on current high gas prices, if there is a significant downward change in the market price of natural gas," the city said.

Reliant filed for a fuel factor based on gas prices of $4.66/MMbtu for 2002, said Paul Gastineau, director of regulatory affairs for Reliant HL&P, a unit of Reliant Energy Inc., Houston.

Gas prices have fallen drastically since Reliant's filing and are still skidding. The fuel factor is supposed to be based on the projected price of gas in 2002.

The New York Mercantile Exchange gas futures contract for 2002 averaged $3.83/MMbtu earlier this week. The volatility of gas prices demonstrates the danger of setting a fuel factor based on gas prices that won't ever be reconciled, said Clarence Johnson, director regulatory analysis for Office of Public Utility Counsel.

Reliant can request an adjustment of the fuel factor based on a 4% change in a certain measure of gas prices. There is no provision in the fuel factor rules that requires a downward adjustment. As a result, there's a danger the fuel factor will be ratcheted up and remain at higher levels, even when natural gas prices come back down, the city said in filed testimony.

Capitalizing on volatility
Gas prices have been especially volatile during the past year, the city said. The January 2001 Henry Hub natural gas futures contract closed at about $10/MMbtu. But futures prices have dropped almost 70% since then, according to the Wall Street Journal.

The August 2001 contract settled at $3.06/MMbtu on July 17. Gas futures contracts for the rest of the year were trading below $4. The natural gas futures price for all months in 2002 and even 2003 remains below $4/MMbtu.

Trying to guess what gas prices will be isn't easy. But under regulation, a fuel reconciliation process protected both ratepayers and the utilities against the risk of rising and falling gas prices. Ratepayers received refunds for overpayment or they could be assessed surcharges for underpayments. Now the only protection for consumers after deregulation from rising gas lies with the competitive market, consumer advocates said.

While gas futures contracts prices can vary wildly, the fuel factor rule allows adjustments with as little as a 4% change in the price of gas based on a 10-day rolling average.

The city of Houston said its calculations showed how the price-to-beat adjustment rule could lead to overcharges in a volatile market. On Mar. 15, 2001, the futures price for the January 2002 contract was $5.34/MMbtu, the city said.

Using a 10-day rolling average ending June 18, 2001, yielded a price of $4.73/MMbtu for the January 2002 contract — a 11.42% difference. Similarly, the July 2002 contract traded at $4.48 on Mar. 15, 2001. But the 10-day average ending June 18, 2001 yielded a price of $4.01 for the July 2002 contract—a 10.4% difference.

"At price levels of $4/MMbtu a 4% increase is only 16¢/MMbtu," the city said its filing. "This volatile market is likely to present frequent instances of 4% changes in the averaged 10-day rolling price."

Sponsored by FLSmidth

Related Articles

PSEG Solar to acquire Maryland solar project from juwi

PSEG Solar Source will acquire a 12.9-MW solar energy facility near Waldorf, Maryland from juwi solar (JSI). The PSEG Waldorf Solar Energy Center will increase the capacity of PSEG Solar Source's portfolio to 123-MW.

Ameren Missouri plans $135M in energy efficiency

Missouri's largest electric company said Monday that it plans to invest $135 million in energy efficiency programs for customers over a three-year period.

Follow Power Engineering on Twitter
Latest News
05/27 Henry Hub Average Natural Gas Spot Prices

05/27 Henry Hub Average Natural Gas Spot Prices

The Henry Hub is the pricing point for natural gas futures contracts traded on the New York M...

Siemens to provide the first H-class power plant technology in Mexico

Siemens has been awarded a contract to supply two SGT6-8000H gas turbines and two generators ...

EIA report: Clean Power Plan will lower CO2 emissions

Carbon dioxide (CO2) emissions in the power sector declined by 363 million metric tons betwee...

Nuclear decommissioning cooperation agreement signed

Vattenfall Europe Nuclear Energy (VENE) and E.ON Technologies (ETG) are cooperating on the de...

Weekly Coal Production Report

The Weekly Coal Production Report has been updated for the week ended May 23, 2015.

West Virginia PSC approves base rate hike for Appalachian Power and Wheeling Power

The West Virginia Public Service Commission on May 26 authorized the Appalachian Power Co. (A...

NRC staff official delegated to approve Watts Bar 2 operating license

Members of the Nuclear Regulatory Commission (NRC) have voted to delegate authority to the di...

Duke Energy receives approval to build 5MW solar power plant in Orlando

Duke Energy Florida (NYSE: DUK) received approval to build, own and operate a 5-MW solar faci...

Power Engineering Current Issue

03/01/2014
Volume 118, Issue 3
1403PE-cover
Products Showcase
Dynamic Fluoride Ion cleaning DFIC of industrial natural gas turbines Hi-Tech Furnace Systems

Dynamic Fluoride Ion Cleaning of IGT Parts

The Dynamic Fluoride Ion Cleaning (DFIC) Process from Hi-Tech Furnace Systems is able to clean deep, narrow cracks of oxides by cycling between negative, atmospheric, and positive pressure.

Archived Articles

2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013

Buyers Guide Categories

Buyers Guide Product Listings

Sargent & Lundy Construction Management Services

Providing complete construction management and ...

Mechanical Services

Expert mechanical services range from boiler ma...
Power Industry Wire News

NW Natural Reports on 2014 Results at Annual Meeting of Shareholders

NW Natural Reports on 2014 Results at Annual Meeting of Shareholders

Trelleborg Senior Appointment Signals Industry Ambition

Trelleborg Senior Appointment Signals Industry Ambition

Planet Resource Recovery Completes PetroLuxus(TM) Application Training to Mexican Companies in the Oil Sector

Planet Resource Recovery Completes PetroLuxus(TM) Application Training to Mexican Compa...

Interpoll Laboratories, Inc. to Exhibit at 31st Annual International Fuel Ethanol Workshop & Expo

Interpoll Laboratories, Inc. to Exhibit at 31st Annual International Fuel Ethanol Works...

EVTN Announces Voraxial(R) Shipment for Oil Spill Response

EVTN Announces Voraxial(R) Shipment for Oil Spill Response

Power Engineering

Article Archives for Power Engineering Magazine

Continuing Education

Professional Development Hours

To access a course listing associated to a specific topic listed below, click on the topic of choice from the list below.

Latest Energy Jobs

View more Job Listings >>