Do you want more-stable gas bills or lower gas bills?
That's a question Questar Gas Co. is considering as it weighs options for procuring gas supplies for upcoming months.
Alan Allred, vice president of business development for Questar Gas, told the Committee of Consumer Services this week that the company has been discussing with the Division of Public Utilities the idea of using financial instruments or long-term contracts to lock in prices for gas the company buys to augment its own supplies.
Allred used an analogy to the insurance industry, noting that taking advantage of the financial instrument method would involve a premium.
"With more stability needs to come the realization that that isn't the lowest cost," Allred said. "But do the customers value that stability as much as the possibility of lower prices in the future?"
The premium would probably range between 20 and 60 cents per decatherm, he said. "Basically, you're paying that cost to have stability," Allred said. "It's entirely possible that what the customer wants is not the lowest cost but the stable cost."
The quandary is simple. Locking in rates for purchased gas has two eventual outcomes. If the wholesale price plummets, Questar Gas customers would be paying more than their brethren elsewhere. If it skyrockets, Questar customers would be in relatively great shape.
Wellhead prices, which are unregulated, for years hovered around $2 per decatherm but went up last year in a classic supply-and-demand scenario. Wholesale prices on the New York Mercantile Exchange jumped to about $10 earlier this year, although they have moderated since.
The forecast for 2001 is an average of about $6.75 per decatherm on the wholesale market. Company-owned gas, which reached $8.60 at its height, is expected to be about $2.50 per decatherm this year.
The company-owned supply accounts for slightly more than half of what Utah customers get from Questar but represents only about $8 on the average monthly bill of $75. The purchased gas accounts for $37, with the rest being for the cost for interstate and local delivery.
Committee member Kent Bateman said customers do not like price spikes, and Allred said it may be two or three years before wholesale prices stabilize. "I think what Alan is saying is we won't see a return to the $2 market any time soon," said Dan Gimble, the committee's energy group manager.
Allred said the general expectation is that supply eventually will catch up with demand but that prices probably will be $7 or $8 before leveling to the $3.50 to $5 range per decatherm.
"This industry has always been boom-and-bust," he said.
Bateman said some people suspect that wells are capped by owners waiting for the right time to supply energy-starved utilities.
Allred said that is not the case with Questar. "There are a lot of forces that keep that from happening," he said. "Anyone who is not producing into this market doesn't have their economics straight, and I just don't think that's happening."
Questar, he said, actually is pumping gas from its wells at a maximum rate. And by using that cheaper-than-wholesale gas, customers saved $12.5 million in gas costs between May and October last year, he said.
And while two recent gas-cost rate increases have been tacked onto customer bills, Allred said customers in much of the rest of the country have seen bills rise 100 to 150 percent because, unlike Questar, their utilities rely much more, if not entirely, on the wholesale gas.
Still, problems remain. While Questar is involved heavily in gas exploration, its existing wells are yielding less gas, and demand is increasing. Thus, the company is working harder "just to keep up" with demand, he said.
The company also would like to see a new federal energy policy and a balancing of environmental interests with the country's energy needs. One environmental limitation, he said, exists in part of Wyoming, where Questar Exploration and Production can drill wells only five months per year.