Opening an MLGW bill can be frightening. One minute you're warm and toasty, and the next, ice water runs through your veins as you come to terms with what you owe. And with a rate hike from the Tennessee Valley Authority -- MLGW's electric supplier -- announced last week and being passed onto local consumers in April, it only gets scarier. We sat down with Bill Bullock, MLGW's manager of economic development, and Eliza King, supervisor of billing, and asked them to explain a utility bill.Flyer: What exactly does this bill tell us, other than we owe MLGW $368?
Bullock: This is a utility bill for 32 days of service ending on January 30, 2006. It gives you the previous and current readings of natural gas and it lists [usage as] 192 units. Those units are in ccf, or hundreds of cubic feet. The next line talks about the purchased gas adjustment: the PGA.
Bullock: The PGA is a "true-up" mechanism. In the '80s, natural gas prices did not fluctuate. They were regulated. We would often have one rate in place for some time, maybe several years in a row, and there would be no need to make any adjustments.
So the PGA changes monthly?
Bullock: The current assumption is that the cost of natural gas is in the range of 45 cents per ccf. The assumption is that if MLGW bought all of its gas at 45 cents per ccf, the PGA would be zero. As the actual cost of gas fluctuates -- and fluctuations in the last couple of years have been strongly on the upswing -- the PGA is the mechanism that MLGW uses so that we can recover our costs of natural gas.
Using the number of units and the amount owed, the cost of gas was $1.38 per ccf.
Bullock: The cost of natural gas is a portfolio of what we've purchased over time, what we're using from storage, and what we've bought on the market at any given time. Our whole strategy is to dampen the volatility and lower the amount those huge fluctuations in the market affect our customers.
This customer was charged $360 for this month, $470 the month before, and $280 the month before that. Those seem like huge fluctuations.
Bullock: The price when you divide it might be $1.30 or $1.40, but what really fluctuates is the usage. And usage is going to be proportional to weather.
King: You have to look at the number of days in a billing period, because that can go from 29 to 34 days. The month of December is also the holiday period. People have guests over, and they're doing a lot of things. They're at home more. You can't just say last month my bill was this and this month it's this. It's how do you use it. A lot of times our customers don't stop to analyze.
Why doesn't MLGW itemize commodity cost versus distribution and operational costs on rate payers' bills?
Bullock: In our [last] board meeting, one of our board members suggested doing something like that. Quite frankly, it's something that would be useful for our customers. Eighty to 85 percent of the dollars that come to MLGW go to our suppliers for the commodity. Very little of that money stays in Memphis for our operations.
What about stocking up?
Bullock: Where many people would say buy natural gas in the summer when it's cheap and use it in the winter when it's expensive -- the market doesn't operate like that anymore. In the last decade, virtually every bit of electric generation built in the United States has been built to be fired with natural gas. It's cheaper to build and it's cleaner to operate. In the summer of 2005, we had quite a hot summer and it took a lot of natural gas to generate a lot of electricity. At the same time, the war in Iraq meant the price of crude oil was going up, and we have a lot of industrial customers who can either use fuel or natural gas. With crude oil going up, they switched to natural gas.
MLGW estimated that bills would be 70 percent higher than last winter.
Bullock: We've had some warm weather, and prices have come down. It's very logical to say that because of that, your bills aren't going to be as high. We're uncomfortable going with that message because prices are still very high.
We get some attention from headlines in Nashville or Detroit that say natural gas bills will be going down. ... The reason bills are going up and down is consumption, and consumption is directly related to the weather. We didn't want to change our message to our customers. We want them to continue to conserve. Our goals may be a little different from an investor-owned utility that's trying to get good information out to its stockholders or a gas company that's competing with an electric company for heating customers.
Why is MLGW's address on the back of the payment coupon?
King: We process 21,000 payments a day. Our people would have carpal tunnel if they had to re-orient every single one. The machine cuts it on three sides and it's right there, already oriented so they can read it.
Read more about utility costs on page 13.