SoCal Gas Won’t Seek Rate Hike

In the first sign that deregulation of natural gas prices can reduce rates at the wellhead, Southern California Gas Co. reported Wednesday that it will pay $100 million less than expected in the year starting May 1.

As a result, the company said in a filing with the state Public Utilities Commission, the rates it charges its 4 million Southland customers will remain stable. Those rates, which dipped modestly Jan. 1, are subject to adjustment this spring, but no increase will be necessary, the company said.

The last increase in gas rates came 22 months ago.

Under the Natural Gas Policy Act of 1978, natural gas prices became fully deregulated Jan. 1. A gas company spokesman said that “it came as a pleasant surprise” when its major suppliers--El Paso Natural Gas Co. and Transwestern Pipeline Co.--responded by cutting rates about 3%.

As a result, SoCal Gas will pay about $100 million less than the $3.5 billion it had expected to pay for gas in the year starting May 1.

Under PUC regulations, the company projects its anticipated gas costs and revenue a year into the future, then reviews the projections every six months.

Oil Prices Still Falling

However, anticipated revenue also appears likely to drop by about $100 million, SoCal Gas said. That’s because oil prices continue to fall, taking with them the gas rates that the company charges its largest industrial customers.

The PUC linked the two prices in an effort to keep major gas users, including Southern California Edison Co., from switching fuels for economy reasons--as many did in recent years when gas prices soared while oil prices fell.

About one-third of SoCal Gas’ sales are to electrical utilities, according to President Robert M. McIntyre.

“These reductions in gas costs are very welcome news,” McIntyre said. “We have been actively working with our suppliers to lower gas costs.”

That effort was necessary because, in the early days of the 1978 deregulation act, utilities found themselves faced with shortages of natural gas and entered into costly contracts to assure themselves of future supplies. They have since had to negotiate waivers from those contracts.

For example, SoCal Gas successfully renegotiated a contract last year with Canadian natural gas suppliers that lowered both the price it pays and the volume of gas it must buy. Canadian gas is more costly than that now available from domestic sources, but the old contracts set volumes that had to be bought, regardless of the availability of cheaper gas.