November 1, 2013
Natural gas costs at the start of the 2013-2014 heating season will be higher than last year, but are still well below the peak reached in 2008, the Kentucky Public Service Commission (PSC) said today.
On average, Kentucky customers can expect to pay about 19 percent more this November than last if they consume 10,000 cubic feet of natural gas. The average total bill for 10,000 cubic feet – including base rates – is projected to be about $101.81.
That is down nearly $49 since November of 2008 - a decrease of 32 percent. The lower cost of natural gas has more than offset increases in base rates over that time.
“Natural gas prices have rebounded from last year’s abnormally low levels, but this year’s prices are still quite low,” PSC Chairman David Armstrong said. “Demand is up because more natural gas is being used to generate electricity and the overall economy has improved.
“But the significant increases in gas production and supply are projected to provide price stability in the coming years,” he said. “The very large year-to-year fluctuations we saw in the previous decade are unlikely to be repeated anytime soon.”
Weather – not price – is the dominant factor in determining the amount of energy that consumers use to heat their homes and thus the size of their heating bill, Armstrong said. The best weapon consumers have to manage their energy costs is to take steps to reduce consumption, he said.
“The best thing consumers can do is to reinvest a portion of the savings from relatively low energy costs now into permanent improvements, such as weatherization, that will provide insulation against higher energy costs in the future,” Armstrong said.
Wholesale natural gas costs this year are, on average, about 35 percent higher than the very low levels of a year ago. Only one of Kentucky’s five large natural gas distribution companies has received a base rate increase in the last year.
Wholesale costs make up the largest portion of retail gas bills during the heating season. They are passed through to consumers on a dollar-for-dollar basis by local distribution companies.
Changes in individual ratepayer bills will vary by company and customer usage.
Wholesale prices over the last five years have not approached the peak prices seen since a sharp upward turn in 2008. Prices declined even more abruptly during the economic downturn in 2009, and have remained relatively stable since then.
By federal law, natural gas prices are not regulated at the wholesale level and generally fluctuate with supply and demand. Under Kentucky law, gas companies are entitled to recover the wholesale cost of the gas delivered to customers, including the fees they pay to interstate pipelines to transport the gas to their retail distribution systems. Companies are not allowed to earn a profit on their gas commodity costs. The companies’ gas cost adjustments are reviewed by the PSC to make sure they accurately reflect the wholesale cost of gas.
About half of the natural gas used for winter heating is put into storage in the summer. The price at which it was purchased is the price passed through to consumers. Until the last decade, natural gas prices typically were considerably lower in the summer than in the winter. That gap has narrowed in recent years, due in large part to the increased use of natural gas to generate electricity.
Kentucky’s five major natural gas distribution companies expect their adjusted wholesale cost this November to be, on average, $5.95 per 1,000 cubic feet (mcf). That is up $1.52 (34 percent) from an average of $4.43 per mcf a year ago.
In August 2008, the average adjusted wholesale cost peaked at $15.17 per mcf.
The wholesale cost of natural gas now accounts for just over half of a typical consumer’s winter bill. A typical Kentucky customer using 10 mcf next month will pay a total monthly bill of $101.81, up $16.26 – or about 19 percent - from the $85.55 average bill a year ago.
That increase is an average for Kentucky’s five major local natural gas distribution companies as of November. It will change as companies make further wholesale cost adjustments throughout the heating season.
Wholesale costs and base rates vary by company. The base rates reflect a utility’s day-to-day operating costs, including the cost of delivering gas, as well as a return on equity for company shareholders.
The five major natural gas distribution companies in Kentucky are Atmos Energy, Columbia Gas of Kentucky Inc., Delta Natural Gas Co. Inc., Louisville Gas and Electric Co. and Duke Energy Kentucky Inc. Together the five companies serve more than 750,000 customers in Kentucky and deliver about 176 billion cubic feet of gas annually.
About 44 percent of Kentuckians heat their homes with natural gas. For those who heat with propane (10 percent), prices are likely to be about 20 percent higher than a year ago, while those heating with fuel oil (3 percent) will see prices similar to those last year.
The 39 percent of Kentuckians who use electric heat are likely to see somewhat higher bills on average this winter, in part because three of Kentucky’s largest electric utilities have had rate increases in the last year.
Although the slow pace of economic growth has helped keep fuel prices stable, it also has left many Kentuckians struggling to pay their heating bills, Armstrong said. Heating assistance is available from local community action agencies and from utility companies, but funds are limited and sometimes run out during the heating season, he said.
“Do not allow a difficulty in paying a utility bill to become a crisis,” Armstrong said. “Now is the time to take the necessary steps if you think that you may need assistance in paying your heating bill this winter.”