In an effort to win back and keep customers in the wake of rapidly dropping oil prices, Washington Gas Light Co. is lowering prices for large customers that have the capacity to switch to fuel oil, the company said.
Commercial customers with boilers that can burn either gas or oil can now bargain for the cheapest energy supply. Most customers, including residential customers, do not have the option to readily switch from one energy source to another, and are not receiving similar offers.
"The message is we'll meet the competition by making it uneccessary to switch to oil," said Paul Young, director of marketing services for WGL. The firm, the largest gas distributor in Virginia and Maryland and the sole distributor in the District, is authorized to offer the lower rates through special programs set up by various regulatory agencies.
But an official at the Virginia State Corporation Commission yesterday said the company had not sought prior approval of the prices it is quoting, in violation of the commission's rules. The SCC governs prices to make sure they are not below cost.
"Companies are not free to go out and quote prices at their will," he said.
The Virginia commission is investigating the contracts and has directed the company to send it a letter asking for the price approval. WGL's Young said the company "will be in touch with the SCC."
Records at the D.C and Maryland public service commissions raise questions about whether required contracts have been filed. Both those commissions, in addition to reviewing prices, require such agreements to be formally filed.
It is the downward price trend of crude oil that is sparking the tough competition betweeen distributors of natural gas and oil. The most commonly traded crude oil in the United States closed at $12.09 a barrel yesterday for April deliveries.
The wholesale price of distillate fuel oil in the Baltimore/Washington area is in the 55-to-60-cent-a-gallon range, or the equivalent of a little more than 40 cents a therm, said Benjamin Schlesinger, a natural-gas analyst at the Bethesda firm of Benjamin Schlesinger & Associates. A therm is a unit of heat used to compare various energy sources.
"Large-volume users in the Washington area have already seen large declines in their fuel-oil prices," he said.
"This is why Washington Gas Light has had to lower its prices," he said. If WGL did not lower its rates, the fixed costs of operating the system would be shared by the remaining customers, including residential customers, he said.
A range of 42.5 cents to 45 cents per therm of natural gas is being offered to some commercial customers, a variety of industry sources said. Residential customers pay an average of 63.08 cents per therm of natural gas.
Washington Gas Light would not confirm the prices to commercial customers or say how many have alternate-fuel capability.
The company serves 575,000 customers, 145,000 of them in D.C. Some 85 to 90 percent of its customers are residential users.
According to one fuel-oil dealer, Washington Gas Light "went into a panic" more than a week ago at the large number of commercial and industrial customers that had switched from gas to oil.
Washington Gas Light marshaled its marketing department to make telephone calls to customers to convince them to switch back to natural gas for 60-day periods, the dealer said.
"They are turning the rate structure on its head," said the dealer, who asked not to be identified. The oil dealer charged the company is selling gas below cost.
WGL's Young brushed aside allegations of selling below cost and said the contracts were being negotiated under provisions made by state regulators that allow the company to lower rates to keep commercial customers in the system.
"Anyone who loses a customer likes to cry foul . . . the commissions approve a floor price to prevent predatory pricing. You can't go below that, it's absolute," he said.
Some commercial customers said they intended to take the rates, but would not sign contracts because they wanted the flexibility to switch back to oil if the price was right.
"They said they'd start with it," said one commercial customer who is switching back to natural gas at lower rates. "But we said we will not sign any contract." The customer said he was "led to believe if I called back the price could go lower."
The D.C. Public Service Commission said the company would be in violation of its rules if it did not sign contracts with all customers to whom it offers special rates.
"The whole purpose is to make sure customers stick with it for a certain period of time," said one PSC official. Otherwise, there are higher rate scales that do not require contracts, she said.
There are 35 contracts now on file at the PSC, the official said. But Young said "more than" 35 contracts exist.
WGL will be filing the contracts, he said, adding that all customers are required to sign contracts to get the lower rates.
WGL also intends to file its contracts with the Maryland Public Service Commission, Young said. Maryland has few contracts on file, according to an official there.