Increase in wholesale natural-gas prices means higher bills for consumers By STEVE EVERLY - The Kansas City Star Date: 10/06/00 22:15

In the summer, William Lacy of Kansas City saw his utility bill soar when he cranked up his natural-gas-powered air conditioner. Now, with the start of the heating season, he is making plans.

He has hauled out the long underwear and turned down his furnace's thermostat. He knows what's coming.

"People are going to scream when they see their bills," Lacy said.

Wholesale natural-gas prices are more than double a year ago, trading at record levels. Even when adjusted for inflation, gas prices are at levels not seen since the mid-1980s.

Temperatures are sliding already, and many people around the Kansas City area are turning on their heaters. If you're among them, expect your wallet to be pinched -- hard. The federal Energy Information Administration on Friday released its outlook for winter prices. Heating oil, propane and natural gas will all be more expensive.

Consumers who use natural gas, which heats more than half of all homes, can expect to pay nearly 30 percent more this year, the federal agency said. In the Kansas City area, consumers could end up paying $250 to $300 more for the average household.

And that is for a normal winter.

The lingering hope is that a milder than normal winter will help take some of the edge off higher heating bills. WeatherData Inc., however, is predicting normal temperatures in this region at least through December.

"It's going to be a very difficult winter," said Jan Marcason, executive director of the Mid America Assistance Coalition.

Slow boil

How bad could it get? Later this month Missouri Gas Energy will file with state regulators what it wants to collect for gas this winter. The charge, called the purchased-gas adjustment, includes the costs for wholesale gas, transportation, and storage.

The utility is expected to ask for more than $6 per 1,000 cubic feet. Three years ago utility customers howled when the adjustment spiked for just a few weeks to $5.90 per 1,000 cubic feet. A typical area household uses about 120,000 cubic feet of gas a year, most of that in the winter.

Kansas Gas Service changes its cost-of-gas adjustment monthly. For October, it is $6.72 per 1,000 cubic feet, a 60 percent increase from a year ago. Add other charges -- which all utilities do -- and the total comes to $8.25 per thousand cubic feet plus taxes.

That is serious money when multiplied by the amount of gas that is used. Steve Johnson, a spokesman for Kansas Gas Service, said one of the utility's concerns is that the cost to an average household is underplaying the potential effect on individual consumers.

If, for instance, January is a particularly cold month and a family lives in a large and poorly insulated house, Johnson can see how their bill could be an additional $300 for that month alone.

"A lot of people are talking about it (prices)," he said.

Concerns about gas prices have been boiling all summer.

Typically, natural-gas costs are lower during the summer when utilities purchase and store as much as half of the gas they will sell during the winter.

Not this year. Some analysts said electric utilities were using more natural gas to generate electricity and that propped up gas prices. Some hoped for a break after air-conditioning season.

Instead, utilities rushed to complete their purchases of stored gas, and that is keeping prices up. The result has been sharply higher than normal prices since April. This week the average price for wholesale gas was $5.30 per thousand cubic feet. A year ago, it was $2.50.

Jack Zekoll, a deputy director at the New York State Public Service Commission, said the consistently high prices had stymied efforts by the nation's utilities to use various methods that in the past could keep the full effect of higher prices from consumers.

Consumer options

Some have already taken the warnings to heart.

The Olathe School District has boosted its heating budget by $400,000 to handle additional natural-gas costs it expects.

The Mid America Assistance Coalition Center is coordinating with other agencies to stretch the amount of money used to pay heating bills for those who cannot afford them.

The organization relies on about $500,000 raised annually by Project Warmth and funds established by area utilities who collect the money from their customers. The amount of money available has declined about 3 percent annually for the last few years.

Now the concern is that contributors will be so stretched to pay their own heating bills that they will be less likely to contribute.

"Every year is tough, but it could be especially so this time," Marcason said.

And the need is likely to be high. The Missouri Division of Family Services, which distributes some federal funds to help pay utility bills, is getting about double the applications for aid that it had received at this time last year.

The higher gas prices also appear to be bringing out the caulk guns. Although energy conservation has not been in vogue for more than a decade, that may be changing.

Hardware stores, while not seeing a rush for supplies, have noticed an increase in purchases for items such as weatherstripping.

"We're getting more reaction. People are trying to get prepared," said Leroy Andrews, a manager of Strasser Hardware in Kansas City, Kan.

Russ Rudy, a director at the Metropolitan Energy Center, said an energy audit could help consumers identify what would work and keep them warm. Savings of 40 percent are possible.

"The reality is we don't want to be uncomfortable while saving energy," he said.

Regulatory review

Utilities are spreading the word in bill inserts that higher prices are on the way.

Paul Snider, a spokesman for Missouri Gas Energy, said the utility this summer sent out a notice and included the advice to enroll in its level-payment plan, which would spread utility costs over a year. More than 13,000 customers responded.

Kansas Gas Service is also encouraging companies to enroll in its plan.

It also has a hedging program that puts a cap on prices if they spike.

The utility spent about $6 million on the program, which should provide some relief. But the utility warns that its customers' bills will still be high because the price caps had to be placed much higher than last year.

Missouri Gas Energy plans to hedge prices but has not done so. It recently asked for approval from state regulators to spend $3 million for a hedging program. An approval could come later this month. One reason for the delay is that a previously approved hedging would no longer work because of the high prices.

Missouri consumers will also benefit from a rule that limits the amount of times gas prices can be changed during the winter. It can be no more than two, although a utility can eventually recover all of its costs.

Missouri regulators are also stepping up their review of how the state's utilities are purchasing natural gas. It is the first time they have asked for the information on a monthly basis, and it could be used for future changes.

To reach Steve Everly, call (816) 234-4455 or send e-mail to severly@kcstar.com

http://www.kcstar.com/item/pages/story,local/3774d162.a06,.html

-- Martin Thompson (mthom1927@aol.com), October 07, 2000