Hoosiers may be in for sticker shock for natural gas

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Natural gas prices likely to go higher; Hoosiers may be in for sticker shock; firms, officials say

Source: The Courier-Journal Louisville, KY Publication date: 2000-07-23

Hoosiers who use natural gas to heat their homes should brace for hefty winter bills. Customers already are paying prices 10 to 40 percent higher than last year. But the increases are barely noticeable now because homeowners use so little natural gas for cooking and heating water during the summer.

As the weather turns cold and furnaces rumble into action, however, consumers could be shocked.

State and industry officials are encouraging customers to prepare by winterizing their homes, checking their furnaces and filters and joining budget-pricing plans that allow the cost of winter heating bills to be spread out through the year.

"It's not going to be an easy winter for anybody," said David Osmon, the controller of Midwest Natural Gas, which serves customers in parts of Washington, Scott, Jackson and Jennings counties.

That's because customers will likely feel what Osmon calls a "double whammy."

First, the winter months likely will be colder than in the past two years - which were unusually warm - so most customers will use more gas to heat their homes.

Second, the price per unit of gas is significantly higher than in recent years - and could increase even more.

The companies that deliver gas to your home won't be reaping the profits of higher prices. The increased costs on customer bills simply reflect the higher wholesale prices charged by suppliers in the changing natural gas market.

"Most people think if the gas price goes up, the utility is making a lot more money," Osmon said. "But this is a market-driven situation."

The cost of gas makes up about 80 percent of a customer's bill. The remaining 20 percent is for the cost of billing, metering and transporting the gas to a customer's home.

Already, the Indiana Utility Regulatory Commission has approved price increases for several gas companies to reflect wholesale price increases expected in coming months.

In May the commission approved a quarterly increase for Indiana Gas customers in Clark, Floyd, Jefferson, Jackson and Lawrence counties that raised summertime gas prices about 17 percent above last year's.

And the company has asked the commission to increase the price by 15 to 25 percent for September, October and November, said Mike Roeder, spokesman for Vectren, the company that owns Indiana Gas. That request is pending.

Prices charged by other Southern Indiana suppliers also are up - in some cases even more. And those companies will return to the commission for another likely increase before winter sets in.

"It's frustrating (that) the commission can't affect the natural gas market in a way that can protect Indiana consumers from significant price increases," said Mike Leppert, the utility regulatory commission's executive director of external affairs.

BUT THE commission wants more information about why prices are so high - and will invite the companies to a public meeting in the coming weeks to discuss them.

"We want to know the market causes of the price change, longer- term projections that might cover the entire winter and any opportunities that might exist for customers to minimize any negative effects of these prices," Leppert said.

Peggy Laramie, director of public relations for the American Gas Association, said gas likely will be expensive through winter. But prices probably won't remain high in the long run, she said.

Industry experts say the price increases stem from a combination of factors.

In 1998 and early 1999, wholesale prices for gas pumped from the ground - called the wellhead price - fell below $2 per thousand cubic feet.

THE LOW PRICE led suppliers to slow production just as economic development was beginning to boost demand to levels greater than projected.

In May 1999 the price climbed above $2, and suppliers began pumping natural gas again. But the six- to 18-month lag time between the start of production and the appearance of that gas in the retail market means that supply remains tight.

Typically, retail gas companies buy only a fraction of their supplies in winter - when prices are highest - and refill storage tanks during the summer as prices fall.

But the drop in the immediate supply of natural gas, coupled with increasing demand, has kept prices higher than usual throughout the spring and summer. The situation has been exacerbated by the increased use of natural gas to generate electricity during hot summer months.

That means retail companies are either still waiting to refill storage tanks or have paid higher than-usual-prices to do so.

But Laramie said the situation is temporary. She said prices are starting to come down a bit - although they remain far higher than last year.

On the New York Mercantile Exchange, natural gas traded for about $2.34 per thousand cubic feet in January. The price peaked in June at about $4.40 - double the price in the previous year - and has dropped a few pennies this month, said Kathy Lomont, manager of communications for ProLiance Energy, an Indianapolis-based company that buys gas on the wholesale market on behalf of retailers, including Indiana Gas.

ProLiance analysts "think prices will probably come down toward the end of year," Lomont said.

But that might not be reflected in residential gas bills until next spring. So retail gas companies plan to encourage customers to try options that can make paying gas bills easier.

INDIANA GAS uses a balance-payment plan that establishes a set monthly charge for gas, based on the customer's usage during the 12 previous months and the current price of gas.

Customers using the plan pay less during the winter but more during the summer than customers who pay for each month's usage.

"It takes the volatility out of their bills," said Roeder, the spokesman for Indiana Gas. "It helps the customer be able to plan for the expense."

Most gas companies have similar plans.

The companies also include tips with their bills that encourage customers to get furnace tune-ups, change their furnace filters and make home improvements that will cut the amount of gas needed to heat their homes.

The Indiana Office of Utility Consumer Counselor, a state agency that represents customers in utility cases, also is distributing brochures that include home-energy tips.

http://cnniw.yellowbrix.com/pages/cnniw/Story.nsp?story_id=12295583&ID=cnniw&scategory=Energy%3ANatural+Gas

You can see an electronic version of those tips by going to http:/ /www.eren.doe.gov/ consumerinfo/finance.html and clicking on Energy Savers

-- Martin Thompson (mthom1927@aol.com), July 26, 2000

Answers

This article can also be found on the Courier-Journal Web site:

http://www.courier- journal.com/localnews/2000/0007/23/000723in_gas.html


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