Natural gas price cushion proves elusive

Talks on providing relief to Hoosiers are stalled by dislike of price caps and problems with suspending sales tax.

By Bill Koenig

Indianapolis Star

October 8, 2000

It was summer. The temperature had reached nearly 90 degrees. The humidity was 84 percent.

But Indiana's gas utilities were talking to state officials about heating bills and how to soften the impact of big increases in the price of natural gas.

Today, temperatures are in the 30s and 40s, and those higher heating costs are on the way. But the two sides still aren't close to a plan.

In fact, stumbling blocks remain to two major ideas proposed this summer to help cope with natural gas prices, which could rise as much as 50 percent.

 Gas utilities strongly oppose a state proposal to cap natural gas prices this winter, then increase prices in the spring and summer.

 The state may not be able to suspend the sales tax that consumers pay for natural gas. Gov. Frank O'Bannon cited an existing state law in ordering a sales-tax suspension on gasoline when prices skyrocketed this summer. But there are major questions that could prohibit the law from being used to cushion the looming natural gas price increases.

As a result, the state's response could end up being relatively modest. In fact, it may not go beyond expanding some existing programs run by the gas utilities during the heating season.

At this point, no one is giving up on the discussions, which started in August. But they acknowledge they aren't getting very far.

"The options for the state are pretty limited," said William D. McCarty, chairman of the Indiana Utility Regulatory Commission "There aren't many arrows to shoot."

Anne Becker, the state's utility consumer counselor, said she's dissatisfied with the pace of talks.

"Are the utilities willing to help their customers?" she said. "All of us could achieve a solution that could help consumers this winter. That is what's getting lost in all of these discussions."

Last week, Becker's office told the regulatory commission it needs to send "a clear signal that the winter of 2000 will not be business as usual. All of us must come up with innovative, meaningful proposals to smooth the impact that exorbitant gas costs will have this winter."

The utilities, though, say their choices also are limited. The price they pay for gas is rising, and the companies say they have to pass those increases on to customers. They also say current heating-assistance programs can be ramped up to help consumers with price increases this winter.

"We care about our customers, too," said Greg Schenkel, president of the Indiana Gas Association.

Consumers, though, are anxious. "If they raise it a third of what they say, nobody will be able to afford it," said Bertha Warren, an 83-year-old Indianapolis resident whose main income is her Social Security check. "First it was gasoline, now they think (natural) gas should go up, too."

Prices for natural gas are rising because demand is going up, but production fell during much of 1999. Small independent companies do much of the exploration for natural gas, and those firms laid off employees and reduced operations when prices were low.

With natural gas prices rising this year, exploration efforts are being revived, and the supply is expected to increase. However, that's not going to ease natural gas prices until mid-2001 at the earliest.

The result: price increases are peaking just in time for winter, when demand for gas is highest because of cold weather.

Problems with two solutions

This summer, the administration of Gov. Frank O'Bannon raised two possibilities to ease prices for consumers.

On Aug. 30, the governor met with executives of several utilities. He gave them a letter suggesting they consider capping prices this winter, delaying price increases until later when consumers wouldn't feel the impact so severely. O'Bannon also told the utilities they should start meeting with Becker to hammer out an agreement about gas prices this winter.

Becker's office proposed in regulatory commission filings last week that consumers should have the option of paying 75 percent of their gas bills during the heating season of November through March, and pay the rest during April through August.

The utilities, though, haven't warmed to the suggestion.

The companies are essentially middlemen. They buy gas from producers and pipe it to residential and business customers, so the utilities are getting hit with price increases, too. If they cap prices for customers, they say, they wouldn't be collecting enough money to pay for the gas, so they'd have to borrow money to make up the difference.

Smaller gas utilities say they can't afford such borrowing. And the larger gas companies in the state, such as Citizens Gas & Coke Utility, NIPSCO and Vectren, don't want to incur increased borrowing costs.

"We don't have a magic wand to solve this," said John Whitaker, a spokesman for Citizens.

The other idea, suspending the 5 percent state sales tax on natural gas, also is running into problems.

O'Bannon suspended the sales tax on gasoline this summer, citing an Indiana law concerning energy emergencies. The governor said the law applied because gasoline prices were higher in the Midwest than other parts of the country. Also, the governor cited reports of supply shortfalls in the region.

None of that applies with the current natural gas situation. While prices are rising sharply, they're going up everywhere. And, so far, there are no reports of natural gas shortages. Supplies are tighter, but not so tight that anyone is talking about not having enough natural gas to meet demand.

Tax suspension possible

Still, O'Bannon hasn't yet ruled out a sales tax suspension for natural gas.

"We're looking at the legal aspects, and we're looking at the fiscal aspects," he said, referring to the impact that losing the tax revenue would have on the state budget.

Gas utilities say their existing winter-season programs can provide relief.

Among other things, the utilities have "budget billing" plans, where a customer can spread the cost evenly over a year's time. The rate is based on a customer's average use of gas.

Historically, few customers sign up for that option. At Vectren, about 20 percent of its Indiana Gas customers are on budget billing, but only 4 percent of its Southern Indiana Gas and Electric Co. have signed up.

In addition, many of the larger utilities have charitable programs that provide assistance to low-income customers. Such programs are intended to supplement federal programs that provide aid for energy bills of poor people.

Some utilities said they're adding to such efforts. Citizens has begun a promotion with Lowe's Home Improvement Warehouses to promote energy-conservation efforts.

NIPSCO is expanding its charitable program, where customers donate money for use by low-income residents.

Last winter, NIPSCO's charitable plan generated $400,000, evenly split between customer and NIPSCO donations. This winter, NIPSCO will pay $2 for every dollar donated by customers.

Schenkel, the gas association president, said such programs are significant and "should not be passed off lightly."

Becker, the consumer counselor, thinks otherwise. In last week's filing with the regulatory commission, she said her office's proposals "have been met with nothing but criticism and rejection by the utilities."

In an interview, she said she's not looking for a quick agreement. "We're not there yet, unfortunately," she said.

http://starnews.com/news/articles/gas1008.html

-- Martin Thompson (mthom1927@aol.com), October 08, 2000