Conservation cited for Natural Gas Price Fix

Working together, environmentalists and Natrual Gas distributors are asking State Regulators across the country to artificially fix the price of natural gas, under the guise of promoting conservation. The Wall Street Journal reports (registration requored):

"If we do this effectively, we will knock prices down," predicted Ralph Cavanagh, an energy analyst with the Natural Resources Defense Council. The NRDC's plan, worked out with officials of the American Gas Association, would, for the first time, guarantee utilities a return on fixed costs such as repairing pipes and reading meters, insulating them from shrinking profits if consumers use less gas. The change could mean that while consumers would pay more for fixed costs, their fees for gas -- which represent a greater portion of their utility bills -- would decline.

The plan also would partly decouple wholesale natural-gas prices, set by state utility commissions, from the volume of gas a given utility sells. This is the first such joint effort between the two groups.

"What we need is a system to promote energy efficiency," said James DeGraffenreidt, chairman of the AGA's policy-making committee. In most states, utilities that attempt to promote ways to save gas are penalized because a drop in consumption means a drop in their profits, he said. AGA represents 192 gas-distribution utilities that supply gas to 53 million homes and businesses.

Gas prices currently are set by state utility commissions using formulas that take into account a utility's fixed costs and how much gas it sells. The plan, which is based on an Oregon model, would guarantee a return on a utility's fixed costs. If the plan works the way it has in Oregon, causing a 10% drop in natural-gas consumption the first winter, consumers in all 50 states could save as much as $2.7 billion next winter based on the current price of natural gas, the AGA estimates.

Consumer advocates should be skeptical. The bottom line is that consumers will pay more for the infrastructure, and arguably less per unit of natural gas being used. Therefore, consumers who are already conserving natural gas will pay more in the end.