Public Service Commission
NATURAL GAS COST LITTLE CHANGED THIS WINTER - Average bills up by about 7 percent, due mostly to base rate changes
With wholesale natural gas prices holding steady over the last year, Kentucky customers will see little change in their heating costs this winter, the Kentucky Public Service Commission (PSC) says.
“Natural gas prices have stabilized considerably since the large fluctuations of recent years,” PSC Chairman David Armstrong said. “Furthermore, with gas supplies increasing, there is reason to think that prices won’t change greatly for the next few years.”
On average, Kentucky customers can expect to pay about 7 percent more this November than last if they consume 10,000 cubic feet of natural gas. But the average total bill – including base rates – is still 35 percent lower than in November 2008.
Changes in individual ratepayer bills will vary by company and customer usage.
Wholesale costs this year are, on average, only 2 percent higher than a year ago. Four of Kentucky’s five large natural gas distribution companies have received base rate increases in the last year.
Wholesale prices over the last year have remained at less than half the peak prices seen in 2008. 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.
The amount of natural gas in storage for use during the winter is at above-average levels, according to data from the federal Energy Information Administration. That suggests adequate supplies and stable prices through the heating season, unless there is widespread and extreme cold weather.
Weather is always the largest factor in determining the amount of energy that consumers use to heat their homes and thus the size of their heating bill, Armstrong said. Improvements in energy efficiency and conservation are the only way to permanently lower energy bills, he said.
“Consumers should not count on energy prices to remain low for the long term,” Armstrong said. “It is always wise to invest current savings from lower heating costs to make permanent improvements in weatherization and other steps to reduce energy consumption.”
After a sharp spike in wholesale natural gas prices in 2008 and an equally abrupt decline last year, wholesale natural gas prices have stabilized.
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, $5.70 per 1,000 cubic feet (mcf). That is up $.09 (2 percent) from an average of $5.61 per mcf a year ago.
In August 2008, the average adjusted wholesale cost peaked at $15.17 per mcf. In November 2002 the average adjusted wholesale cost was $4.90 per mcf.
The wholesale cost of natural gas accounts for about three-fourths of a typical consumer’s winter bill. A typical Kentucky customer using 10 mcf next month will pay a total monthly bill of $98.19, up $6.11 – or 6.6 percent - from the $92.08 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.
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.
Atmos Energy, Delta Natural Gas, Duke Energy Kentucky and Louisville Gas and Electric all have received their base rate increases in the last year. 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.
About 44 percent of Kentuckians heat their homes with natural gas. Those who heat with propane (10 percent) and fuel oil (3 percent) will see higher costs than last year.
The 39 percent of Kentuckians who use electric heat are likely to see somewhat higher bills on average this winter, largely because of base rate increases granted to three of Kentucky’s largest electric utilities in the past year. The cost of coal – used to generate more than 90 percent of Kentucky’s electricity – has remained relatively stable in recent years.
Fuel prices have stabilized in large part because the sagging economy has reduced demand, Armstrong said. The ongoing economic slump means that many Kentuckians will continue to have difficulty paying their heating bills, he said. Heating assistance is available from utility companies and local community action agencies, but funds are limited and sometimes run out during the heating season, he said.
“Do not delay looking for assistance until a difficulty has become a crisis,” Armstrong said. “Now is the time to take the necessary steps if you think that you may need help paying your heating bill this winter.”
A briefing held today on natural gas prices will be available for viewing at a later time in streaming video format in the PSC’s video library, at http://psc.ky.gov/Home/Media. A video of the briefing also will be available for download on the PSC’s FTP site, ftp://220.127.116.11/.
The PSC is an independent agency attached for administrative purposes to the Energy and Environment Cabinet. It regulates more than 1,500 gas, water, sewer, electric and telecommunication utilities operating in Kentucky and has approximately 100 employees.