PORTLAND, Ore. (AP) _ Starting next month, customers of the state's largest natural gas utility could see rates increase by 14 percent.

Northwest Natural Gas delivered its final gas cost estimates Friday along with Cascade Natural Gas and Avista - the state's two other investor-owned gas utilities.

The requests are lower than estimates given state regulators earlier because natural gas prices have dropped in recent months. Earlier this year, for example, NW Natural had said its rates might rise as much as 40 percent.

The short-term spot price of Canadian and Rockies natural gas has plummeted in the past two months after reaching a high alongside crude oil prices in July.

However, utilities don't buy much of their gas supply on the spot market, and their projected prices only partially reflect the recent steep decline.

Oregon state regulators are expected to set rates, effective Nov. 1.

Currently, the commodity cost of fuel makes up about two-thirds of a customer's gas bill. The utilities make no markup on the gas, simply passing through their cost to consumers.

The projected rate increases differ among the utilities because each uses different financial strategies to hedge market risk and each has a different set of fees and refunds flowing through rates at any given time.

Cascade says its central Oregon customers can expect a 5.4 percent increase.

Avista says its customers in southern Oregon will likely see prices drop by 4.1 percent.

NW Natural has 650,000 customers in Oregon and Washington state, where it is seeking a 20 percent rate increase.

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Northwest Natural Gas answers questions about the rate increase: 
  
Rising demand for energy is causing dramatic cost increases nationwide – and natural gas costs are no exception. Provided below are answers to questions you may have about the expected increase in rates this fall.

Commodity prices are falling. Why has NW Natural requested a rate increase?

Even with falling prices, gas prices are higher than they were a year ago. They have been considerably higher than last year’s level for all of 2008.

Every year, NW Natural adjusts its rates to correspond to natural gas costs.  In 2007, the company lowered rates by about 8 percent in Oregon and 10 percent in Washington.   This year, the company will raise its rates to cover higher gas costs.

Last year, natural gas prices were lower than they had been in some time.  Beginning in October 2007 they began climbing. This summer, gas prices set new records, peaking at about $13 per MMbtu in July. (This compares to about $7 the previous July).  Even today, after the dramatic drop in prices, gas costs significantly more than it did a year ago. 

To make sure we have enough gas for our customers, we buy our gas supplies throughout the year. So all year, we have been buying some gas at higher prices than last year. Gas prices have not fallen far enough, nor for a long enough period, to make up for the rest of the year.

Why are prices so volatile?

All energy costs are volatile these days - and natural gas is no exception. Changes in the economy, a rise in global energy demand, weather, storage levels and other circumstances can send prices higher or lower. This year:

Most of the nation experience a long, cold winter. Here in the Northwest, spring was much cooler than normal. Gas utilities across the nation used more gas for home heating than they expected and drew down their storage levels.Natural gas prices can track with oil. We've seen how skyrocketing oil prices drove gasoline costs above $4. The natural gas market followed the trend.

More electric utilities are using natural gas to create electricity because it's twice as clean as coal. But that use drives up demand and puts more pressure on prices.

While it may not ease the burden of higher prices, we want you to know that NW Natural will not profit from these higher prices. the cost of natural gas is a pass-through and is not marked up.

If NW Natural won’t profit on these higher gas costs, how does the company make money? Are you guaranteed a profit?

Like all regulated utilities, NW Natural is allowed to make a regulated return (profit) on what we spend for the pipelines, meters, and other equipment we need to deliver gas to our customers.  But profits are not guaranteed. NW Natural must run our business efficiently and effectively, and meet many regulatory conditions in the process.

If NW Natural just passes on the gas costs, why would the company work hard to keep costs low?

We do everything we can to keep gas costs low because higher gas costs don’t benefit our customers or our company.

NW Natural’s financial future depends on our ability to satisfy our existing customers and attract new ones. Higher rates make it harder for us to do that. In addition, regulators oversee our purchasing strategies to ensure we are making prudent decisions.

Are other utilities around the nation raising their rates?

Yes. Soaring wholesale natural gas costs are causing rate increases nationwide. According to Gas Daily (June 30, 2008) “From Montana to Illinois to Virginia, local natural gas distribution companies are warning…that natural gas bills next fall and winter will be 10 percent to 50 percent higher than a year ago.”

Does this rate increase have anything to do with the new pipelines or LNG terminals being proposed in Oregon?

No. Those projects are being funded by private investors.

We’re hearing about all the natural gas supplies now being found in the U.S.  If that’s the case, why would we need imported liquefied natural gas?

Natural gas costs have been rising because of tightening supplies during the last eight years.  We expect to see that situation worsen: as Canada reduces its exports to the U.S. substantially – by as much as 80 percent by 2024; as conventional U.S. supply sources continue to decline; and as carbon constraints mean the country needs more natural gas for power generation.

New higher cost non-traditional supplies, such as those derived from shale, will help us make up for some of the loss of Canadian and conventional domestic supplies.  But energy experts believe we’ll still need additional gas supply sources to meet future demand.

One of the advantages to NW Natural customers of an LNG facility on the Columbia River is that the gas will come directly into our service territory, helping us reduce transportation costs.  In contrast, gas from shale will have to be transported by pipeline across the nation and cost more locally to our customers.  We believe that LNG will be the less expensive alternative over the long-term.