Thursday, March 16, 2006

Utility bills draw inquiry

Staff Writer

High utility bills in February have triggered concerns and inquiry from several Holly Springs Utility Department customers.

Mike and Jorja Lynn, owners of Walter Place Estate, Cottages and Gardens LLC, said their utility bill nearly doubled for the month of February. Joey Miller, of Linwood’s, said his utility bill got his attention. The bill for gas was what tipped the scale; gas which both the Lynns and Miller use for heating.

Mike Lynn and Miller said they would like more information.

Lynn, who owns the University Club in Oxford, said his utility bill there did not double in February. So he thinks HSUD could be charging higher rates for gas than Oxford.

Lynn’s utility bill for February - including Walter Place, Polk Place, Featherston, and associated properties - came to $4,041.73, about double what he paid in January, he said. He attributed the jump in his bill mostly to the price of gas.

His utility bill in Holly Springs had been about the same as for University Club, in Oxford, he said. Each bill usually runs close to $2,000 a month, Lynn said.

“Everybody thinks their utility bill is high,” Lynn said. “Look at this one.”

Miller said it’s strictly the cost of gas that is affecting his utility bills but February’s gas bill was one of the most dramatic spikes he has seen.

“We were all warned it was going up, to take precautions, caulk, turn down the thermostat,” Miller said. “It got my attention.”

Miller went on the Internet to compare what HSUD pays for gas as compared to New Albany and Oxford. He said gas prices at all three utilities started rising in November 2005.

“Everybody’s went up but the amount it went up the greatest was here,” he said. “We were always on the higher end.”

According to Miller’s Internet research, New Albany customers were paying $1.38 per 100 cubic feet (CCF) of gas, Oxford was paying $1.40 and Holly Springs was charging $1.61 per CCF.

Two things Miller said he does not understand is why Holly Springs charges its customers more for natural gas since his research showed that the price for natural gas has been falling steadily following a dramatic spike last fall in the wake of Hurricanes Katrina and Rita which disrupted supply lines from the Gulf of Mexico oil and gas fields.

“I think it (gas prices) peaked to somewhere in the $15 to $16 (per thousand cubic feet, MCF) range and has been steadily dropping within the last couple of months,” Miller said. “It has been fluctuating between $7 and $8 (MCF), but our price has not. We’ve been at $1.61 for the last few periods. Oxford prices topped at $1.50 in January but in the February period it had dropped to $1.21 per CCF.”

One MCF equals 10 CCF.

Miller said there has to be a logical explanation.

“How are people seeing better prices?” he asked. “I can’t survive another winter like this. I’m trying to keep up a store and two houses. It was enough (of an increase) to get my attention.”

Miller said he has not gotten a satisfactory explanation of why Holly Springs natural gas prices are higher than what New Albany and Oxford customers pay.

He said if his store were located in Oxford, he would have paid about $100 less on his utility bill.

Miller said he believes HSUD is not securing the best rates from the gas producers.

“If I buy a new car and then see it (one just like it) sitting on another lot somewhere else for a lot less, I get concerned,” Miller said. “It seems like most people just sit down and take it. I just want to make sure we look to see if there is another way (of getting better gas prices).

“This is my money. I’m a Miller and we don’t give it (money) up easily.”

Don Hollingsworth with Holly Springs Public Works explained how pricing and buying works at HSUD, a member of the Mississippi Municipal Gas Authority (MGAM), set up by the state legislature.

“HSUD purchases its gas through MGAM because we have a prepay arrangement which is market price minus 10 cents per decatherm (about 1.024 million cubit feet),” he said. “Oxford is not a local distribution company, but is served by Entex from Houston, Texas. New Albany is part of a group with the Tennessee Valley Authority.”

HSUD has some storage accounts in Louisiana and Pennsylvania for daily balancing and high peak (use) days in winter, he said.

“We like the storage to be empty on April 1 and to fill November 1,” Hollingsworth said. “But the last couple of years, the ‘air-conditioner load’ has driven the cost of gas up in the summer, which costs HSUD more for gas put in storage during the summer than it used to.

“This past year we had four percent in our storage account when the hurricane hit the Gulf Coast and it drove gas to $12 to $18 per decatherm. When gas dropped to $15 per decatherm, we had to put some gas into storage in December 2005. For January and February 2006, we had to pull some gas out of storage and blend with our regular supply.”

What that meant was that customers were paying a little more than market price during January and February for gas because of the higher priced HSUD pulled out of its storage account.

Gas commodity prices have historically remained very stable until Hurricane Katrina disrupted energy supplies of both oil and natural gas produced in the Gulf Coast, he said.

Ideally, HSUD would buy gas in advance for its storage account in the summer when prices are historically cheapest.

HSUD’s storage account would be typically used up in April.

But last year Katrina and Rita changed gas prices across the entire United States dramatically.

Supply shortages in November drove all energy prices up. Also, power companies that generate electricity for the air conditioning load over the United States, companies like Magnolia Energy in Ashland, are competing for the natural gas supply. That means the usual price-saving dip in natural gas prices in the summer does not dip as low now.

Utilities like HSUD therefore will not get that summer savings. Hollingsworth said HSUD refills its storage account in the late spring and in fall now.

Prices listed on the Internet or read out on television are for decatherms at the well head, Hollingsworth said.

Holly Springs customers charges are derived from three costs: the actual price HSUD pays per decatherm of natural gas at the well head, the transportation fee charged by the pipeline to get gas to the end user ($0.51 per decatherm), and $0.28 cents per CCF for HSUD’s operating costs.

As the weather begins to warm customers use less gas, but the price they pay per unit will not go down to the monthly market rate until HSUD uses up its storage, Hollingsworth said.

HSUD buys gas in decatherms, not CCFs. In order to price natural gas for end users in Holly Springs, the decatherm unit is converted to CCFs.

For the month of March, HSUD has ordered 1,800 decatherms a day - 1,000 decatherms/day at $6.98, 400 decatherms/day at $6.545 and 400 decatherms/day at $12.457 (to draw down the storage account).

The average price HSUD will pay for gas in March comes to $8.099 per decatherm.

Adding the transportation (pipeline) costs at $0.51 per decatherm will adjust the price upward to $8.609 per decatherm. Converting that value from decatherms to thousand cubic feet (MCF) the cost to $8.816 per MCF or $0.8816 per CCF. The line loss at 3.5 percent is then accounted for by adjusting the price upward again to $9.136 per MCF or $0.9136 per CCF.

HSUD adds its operating cost at $0.28 per CCF to the gas cost at $0.9136 per CCF bringing the total cost per unit to residential customers in March to $1.194 per CCF.

“If you are going to cut something you have to cut the margin,” he said. “Twenty-eight cents (per CCF) is in the mid-range, not high and not low.”

Hollingsworth advised the mayor and board of aldermen last week that HSUD will purchase gas for storage as another bad hurricane season is expected this year.

“If we can get gas for less than $7 per decatherm in storage, I have informed MGAM to start flowing gas into storage so we do not get caught in the trap,” Hollingsworth said. “The futures market has gas at $10 per decatherm for the month of June. The reason for this is the water in the Gulf is two degrees warmer now than in past years.”

Hollingsworth said anyone who wants further clarification of how natural gas is priced is welcome to call HSUD at 252-9976 and set up an appointment with him.

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