Why are MDU's natural gas rates lower than NorthWestern's?

2012-12-01T22:50:00Z 2012-12-01T22:57:49Z Why are MDU's natural gas rates lower than NorthWestern's?By MIKE DENNISON Missoulian State Bureau missoulian.com
December 01, 2012 10:50 pm  • 

HELENA – If you’re an average homeowner in Billings and use natural gas to heat your house, your monthly bill for November was probably about $58.

But if you live in Helena, Butte or Missoula, you paid about $81 for the same amount of natural gas.

Why the difference? Billings households are served by Montana-Dakota Utilities, while the other cities are served by NorthWestern Energy.

Over the past few years, MDU’s natural gas rates have been consistently 25 percent to 35 percent lower than those charged by NorthWestern, or about $2.25 to $3 per dekatherm of gas. An average home consumes about 120 dekatherms of gas per year.

Travis Kavulla, chairman of the Montana Public Service Commission, says it’s not unusual for different utilities to have starkly different rates for the same product.

Each utility has its own costs of maintaining its distribution system, and under state law, utilities are allowed to recover those costs in rates charged to customers. Kavulla, a Republican from Great Falls, says he’s satisfied the PSC has properly approved gas rates that cover costs incurred by MDU and NorthWestern.

NorthWestern has a larger gas distribution system in Montana, serving 182,000 customers that include the urban centers of Missoula, Kalispell, Helena, Butte and Bozeman.

MDU also serves a geographically large area here, stretching from Glendive to Park City, including Billings, and from Sidney to Malta, along the Hi-Line. It serves nearly 79,000 customers in Montana.

The majority of a customer’s gas bill, however, pays for the actual fuel, which utilities buy from independent producers at market prices. That cost is passed through to customers, adjusted monthly as market prices fluctuate.

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The price paid by NorthWestern and MDU for this gas hasn’t differed that much over the years. The larger difference in their rates appears to be in delivery costs.

However, even this difference isn’t entirely clear. MDU says the price it pays for natural gas includes some transportation costs – which is a separate charge on NorthWestern bills.

NorthWestern also charges customers for the cost of storing gas, when it purchases gas in the low-demand summer months and stores it for use in high-demand winter months. MDU doesn’t have a specific storage charge, although it does buy and store gas as well.

Claudia Rapkoch, spokeswoman for NorthWestern, says she doesn’t know why MDU’s rates are so much lower than NorthWestern’s, because she’s unfamiliar with MDU’s system.

“Our system is built for the people that we serve, and the costs that were incurred to build this system,” she says. “It was all built and maintained with our customers in mind, and (our) rates support that.”

Laura Lueder, spokeswoman for MDU Resources in Bismarck, N.D., says its gas utility has fairly direct pipeline routes from where it buys natural gas to its customers, so transportation costs are relatively low.

She says the company also has multiple options on where it can buy gas, from producers in Montana, Wyoming and North Dakota, and sets up long-term contracts to keep prices as low as possible.

Kavulla notes that NorthWestern entered into some longer-term contracts for buying natural gas a few years ago when prices were high and some observers thought they would go higher.

Market prices for natural gas, however, have dropped dramatically in recent years, with the boom in hydraulic fracturing, or “fracking,” that has tapped vast new gas fields in the East and elsewhere.

That left NorthWestern with some above-market contracts, and the last of those will be ending next year, he says.

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