The Oregonian reports on an interesting business dispute: “Late last summer, Northwest Natural Gas Co. scored what seemed like an enormous coup. It lured 19 industrial buyers back into the NW Natural customer family with one-year contracts, increasing the Portland company’s total natural gas sales volume by more than 10 percent with a few strokes of the pen.
“But NW Natural’s victory quickly turned sour thanks in large part to Hurricanes Katrina and Rita, which drove natural gas prices to record levels. Within days of beginning service to the new customers, NW Natural notified its new customers they wouldn’t be getting gas at the bargain prices they expected.
“The customers faced new rates about 50 percent in excess of what they thought they’d been promised. The customers fumed that NW Natural had misrepresented itself and had put them in a terrible position.
“In October, when gas prices peaked, Ed Finklea, a Portland lawyer representing Northwest Industrial Gas Users, estimated that the companies faced $20 million to $30 million in additional annual gas costs.”
It’s not clear from the article if this is also a deregulation issue. In our market, the unregulated subsidiaries of Nicor and Peoples have had their own tribulations. Nicor Energy is in fact defunct and its top executives are in jail.
“The disagreement illustrates the toll that natural gas volatility has taken both on utilities and their customers. Tight supplies, made tighter by the hurricanes, led to projections that prices could jump by 70 percent or more.”
And so they did. But I can tell you that no supplier I’ve dealt with will buy a single therm or kWh without a customer signature and contract in hand. What happened here?
“On Aug. 24, the utility invited several large gas users to its Old Town headquarters for a reception and dinner. At the time, all of the companies were buying gas on the open market from various wholesalers.
“Many of the customers came away from the dinner meeting and follow-up conversations thinking NW Natural had promised them a firm price of 73.5 cents per therm for a full year.
“That’s far above natural gas price ranges during much of the 1990s. But even before the hurricanes battered the Gulf Coast gas infrastructure, prices had soared, making 73.5 cents per therm a relatively attractive price.”
Pacific Northwest natural gas prices are lower than elsewhere because of Canadian and Rockies sources, but that price was too good to be true on that date.
“NW Natural continued to accept the new customers, even after the hurricanes’ market impact was abundantly clear. Georgia-Pacific didn’t elect to go with NW Natural until late September.
“But on Oct. 19, the NW Natural announced that it would be passing “incremental gas supply costs” onto the new customers. The customers suddenly faced a price of $1.10 per therm, about 50 percent above what they thought they’d been promised.”
There’s gotta be a contract, terms and conditions spelling all this out. And yet:
“Debra Garcia, a lead PUC staffer in the investigation, said she’s at a loss to explain how so many sophisticated business customers came to the belief that NW Natural made a commitment when the utility denies it. She added that the new customers have been unable to provide her office with any documents proving that NW Natural violated its agreements.
“We have the company saying one thing and a bunch of customers saying another,” Garcia said. “We’re left scratching our heads.”
This has been a cautionary tale from the energy trenches.