Columbia Gas System, Inc., the pipeline company that supplies natural gas to the Washington area, said this week it intends to break long-term contracts with gas producers and cut its purchases of gas in half in an effort to hold down price increases.
The pipeline said the action would permit it to ask the Federal Energy Regulatory Commission to reduce wholesale gas prices to Washington Gas Light Co. and other customers by 5.5 percent, saving customers $83 million over the next four months.
Columbia Gas has notified the 3,000 producers from which it buys gas that it is invoking emergency provisions of its supply contracts and will buy only half the gas it had contracted to purchase.
A spokesman for the Charleston, W.Va., gas company said it is acting under the "force majeure" clauses in its contracts. Force majeure is defined in contract law as a superior or irresistible force beyond control and is often applied to events such as revolution and natural catastrophes. Columbia contends that emergency provisions apply because the recession and the warmest winter in 36 years combined to cut back gas consumption.
This use of the provision is considered unusual by industry observers, who predicted the gas producers would bring lawsuits against Columbia. Ben Polis, a spokesman for Columbia Gas Transmission Corp., the principal subsidiary, replied, "We are prepared to defend our actions if need be."
He said that Columbia decided to cut purchases unilaterally after negotiations with producers to lower the price were unsuccessful. He added that Columbia had used the provision last year with four pipeline suppliers to reduce prices. One supplier went to court to block Columbia and the three others complained to the Federal Energy Regulatory Commission. Polis said two of the companies have since settled with Columbia on terms favorable to his company; the others are still negotiating.
Gas companies have come under fire from consumer groups and government regulators for continuing to charge high prices when there is an oversupply of gas. The companies protest that they could not have anticipated the situation two years ago when they signed long-term contracts to buy gas at elevated prices. As a result, many have tried to renegotiate their contracts with producers. The amounts involved nationwide run to billions of dollars.
Columbia Gas Transmission had earlier agreed with some of its suppliers to cut its purchases to between 75 and 90 percent of the contracted amount.
The Natural Gas Supply Association calculates that cutting purchases of high priced gas will reduce Columbia's price from $4.56 to $4.30 per 1,000 cubic feet.
The organization, which represents producers, shifted the blame to the federal government. "Columbia's rationale for its action indicates the extent to which continued federal regulation of natural gas at the wellhead has prevented gas buyers and sellers from responding to the current deliverability surplus," it said.