Ohio Districts Battle To Buy Natural Gas in Bulk

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Ohio's education department has joined 70 school districts that are challenging a utility's rate practices, claiming schools are being denied a chance for big savings on natural gas.

The northeastern Ohio districts have been fighting before the state public-utilities commission to knock down rates they say prevent schools from capitalizing on bulk purchases of natural gas.

Lee Fisher, the state attorney general, filed a petition with the commission last week that supports the districts' claims.

The purchase of natural gas in bulk quantities "can often result in significant savings for school districts," Mr. Fisher argues in the petition.

Rates adopted by the East Ohio Gas Company, which serves northeastern Ohio, however, make such purchases "economically unfeasible," he writes.

Filed on behalf of the education department, the petition formally aligned the state with the Greater Cleveland Schools' Council, the coalition of districts that petitioned the utilities commission during the summer.

"We believe these schools should get some kind of break on gas transportation," said John P. Ware, an assistant attorney general for education.

Officials of the utility, however, have argued before the commission that the fee increases are justified.

Lengthy Negotiations

The state has intervened before in rate cases, but this was its first action in a natural-gas decision, said Claude W. Eggleton, a gas officer at the utilities commission.

"It's kind of unprecedented," he said.

The petition to the utilities commission by the schools' council follows more than eight years of negotiating over bulk purchasing with East Ohio Gas, according to Joseph A. Lesak, the assistant executive secretary of the council.

In requesting a rate increase, East Ohio has asked to boost the various monthly administrative fees paid by bulk purchasers from $165 per meter to $252 per meter.

School districts in the council have an average of about 10 meters each, Mr. Lesak said. East Ohio's fees already are high enough to wipe out any savings that schools might achieve through purchasing in bulk, he said.

The five-member utilities commission will hold hearings on the matter later this month. Commission staff members have recommended that fees at East Ohio be held at current levels, despite the schools' petition to lower them.

"The fees are a barrier, no doubt about it," said Mr. Eggleton. But East Ohio justified to commission aides its need for $165 in charges, he said.

Huge Savings

Deregulation of the natural-gas industry in the 1980's paved the way for schools to make such bulk-purchasing deals. Essentially, customers can now shop anywhere in the country for gas and have it transported by interstate pipelines. Local utilities, such as East Ohio, are then paid only for the cost of transporting the gas in their pipes.

Glenn S. Krassnen, a lawyer who negotiates with utilities and natural-gas producers for the coalition and other Ohio school districts, said the nearly 100 districts he represents have saved roughly $2 million since 1986.

Those schools are served by another utility, Columbia Gas of Ohio. Columbia charges bulk customers a monthly administrative fee of $6 per meter, but it has dropped that fee for schools, a company spokesman said.

Eight districts in the Greater Cleveland Schools' Council are served by Columbia Gas and reap big savings through bulk purchasing of natural gas, said Mr. Lesak. One 21-school district expects to save $82,000 this year.

More schools can enjoy such savings if the utilities commission forces East Ohio to reduce its rates, Mr. Krassnen said. "If we're successful, we're going to try to knock down other barriers on other gas companies," he added.

But Terry J. Uhl, a spokesman for East Ohio Gas, cautioned that savings from such arrangements can be illusory. For example, if bulk purchasers cannot get more gas quickly from their producers during a long cold spell, they often have to buy reserves from the local utility at much higher rates.

"It's the old adage, 'You can pay me now, or you can pay me later,"' Mr. Uhl said.

Arctic weather can also pit hospitals, schools, and others providing critical public services against big-budget private companies in a fierce competition to purchase the local utility's reserve, he said.

"If we have another January 19 like last year, where it was 20 below zero, they're going to be scrambling for supplies along with everybody else," Mr. Uhl said. "In the past, that wasn't considered good public policy."

Vol. 14, Issue 02

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