Natural gas costs will be lower this winter, state says
Kentucky Press News Service
FRANKFORT – Kentucky residents who heat their homes with natural gas will see much lower prices at the start of the 2015-2016 heating season than they did a year ago, the Kentucky Public Service Commission said Tuesday.
Gas prices are down by more than a third from this time last year, and have fallen by more than two-thirds from the peak reached in 2008, the PSC said in a news release.
On average, Kentucky customers can expect their total gas bill to be about 21 percent smaller this November than last, based on consumption of 10,000 cubic feet of natural gas. The average total bill for 10,000 cubic feet – including base rates – is projected to be about $83.74.
That is down about $23 from last year and a decrease of more than $67 – or about 44 percent – since November 2008. The lower cost of natural gas has more than offset increases in base rates over that time.
“Development of new sources of natural gas has produced a long-term decline in prices,” PSC Chairman Jim Gardner said. “The supply has kept pace with higher demand from both an improving economy and greater use of natural gas to fuel electric power plants.”
Weather determines the amount of energy that consumers use to heat their homes and thus is the major factor in the size of their heating bill, Gardner said.
“The extended outlook for this winter is for temperatures to be close to normal or perhaps a bit warmer than usual in Kentucky,” Gardner said. “Areas to our north are forecast to be warmer than normal, which would reduce usage and help keep natural gas prices low.”
But whatever the weather or the cost of natural gas, consumers would still benefit by taking steps to reduce consumption, he said.
“Today’s low natural gas costs offer an opportunity to invest in permanent improvements, such as weatherization, that will insulate homeowners against higher energy costs in the future,” Gardner said.
Natural gas costs this year are, on average, about 38 percent lower than a year ago. As the cost of gas falls, base rates make up a larger portion of the total bill, which is why the overall average decrease is smaller than the average decline in the cost of gas itself. Only one of Kentucky’s five large natural gas distribution companies received a base rate increase in the last 12 months.
Changes in individual ratepayer bills will vary by company and customer usage.
Wholesale prices over the last six years have not approached the peak prices seen during a sharp upward turn in 2008. Prices declined even more abruptly during the economic downturn in 2009, and have fallen since then.
The commodity cost of natural gas is passed through to consumers on a dollar-for-dollar basis by local distribution companies.
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 cost of natural 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, $3.85 per 1,000 cubic feet (mcf). That is down $2.32 (38 percent) from an average of $6.17 per mcf a year ago.
In August 2008, the average adjusted wholesale cost peaked at $15.17 per mcf.
The commodity cost of natural gas now accounts for less than half of a typical consumer’s winter bill. Of the typical customer’s total monthly bill of $83.74, the average commodity cost of gas would be $38.50.
The projected monthly bill 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) or fuel oil (3 percent), prices are expected to be lower than last year, according to the U.S. Energy Information Administration.
The 39 percent of Kentuckians who use electric heat are likely to see somewhat higher bills on average this winter, in part because two of Kentucky’s largest electric utilities had a rate increase in the last year.
Although fuel prices have been relatively stable in recent years, many Kentuckians still struggle to pay their heating bills, Gardner 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 wait to act until you are in danger of losing utility service,” Gardner said. “If you anticipate difficulties in paying your heating bill this winter, now is the time to find out where you might be able to receive assistance.”