9.17.09

A warm feeling: Heat bills will drop
By: Ross Boettcher, Omaha World-Herald

Residential customers of Metropolitan Utilities District could save an average of nearly $85 on this season’s heating bill because of lower natural gas prices, lower demand and higher domestic production.

Black Hills Energy expects to lower rates by 20 percent to 25 percent over last season. It supplies natural gas to homes in Iowa, including Council Bluffs, and to 110 communities in eastern Nebraska.

MidAmerican Energy, which also operates in Iowa, reduced its natural gas rates by about 30 percent in January, so customers will fully realize those savings in this season’s bills.

The reductions in home heating rates appear modest, considering that natural gas prices on the open market tumbled to a seven-year low earlier this month and were 80 percent lower than at the same time last year.

But the utilities, state regulators and federal officials say price volatility, weather and other factors make the relationship between what utility companies pay for gas and what they charge customers more complicated.

The past 14 months illustrate that volatility.

Natural gas prices at the wellhead peaked last summer at nearly $10.82 per 1,000 cubic feet. They declined steadily through the fall and winter, bottoming out at around $2.409 during the first week of this month.

This week, however, contracts for October delivery jumped to $3.76, fueled by an expectation of higher future demand because the recession is easing, said Kobi Platt, an analyst for the Energy Information Administration, a statistics agency for the U.S. Department of Energy.

Utilities generally buy most of a heating season’s gas supplies in advance, seeking to lock in lower rates, but their purchasing practices are complicated even to regulators, said Laura Demman, who heads the natural gas department at the Nebraska Public Service Commission.

“It’s complicated,” Demman said, “but it needs to be fair.”

Platt said utilities build market volatility into the rates they charge customers, which limits the overall savings even when natural gas prices fall.

When Hurricane Katrina hit New Orleans in August 2005, it disrupted fuel operations in Louisiana and surrounding states, causing natural gas prices to skyrocket. Beginning in September 2005, utilities buying gas on the spot market had to pay dramatically higher prices and pass those costs on to the consumer, he said.

Most Midlands homes and businesses use natural gas for heat. A smaller number rely on electricity, and propane is the most common heating fuel for rural homeowners.

During the heating season, October through March, most residential customers use an average of 800 therms, according to the utilities. A therm is a heat measurement roughly equivalent to 100 cubic feet of gas.

Last season, M.U.D. residential customers paid .6666 cents per therm, so the average bill for the season was about $533.28. At .5647 cents per therm — the forecast price this heating season — the bill would be about $451.76, a savings of $81.52.

Black Hills and MidAmerican are both publicly traded companies that must produce earnings for their shareholders. M.U.D., on the other hand, is publicly owned and historically has provided some of the lowest utility prices in the country, according to a national survey.

MidAmerican Energy spokeswoman Ann Thelen said she didn’t expect additional rate reductions this season.

MidAmerican historically purchases about 65 percent of its gas supply before the heating season begins, then purchases the remainder throughout the heating season, when prices could fluctuate, Thelen said.

Bob McKeon, a spokesman for Black Hills Energy, predicted that customers will see savings of between 20 percent and 25 percent. But that projection could change over the winter, McKeon said.

Predicting actual savings is difficult for many reasons, including: outdoor temperatures, size of home, amount of insulation and thermostat setting.

Additionally, the cost of natural gas represents only two-thirds to three-quarters of a customer’s total bill, the companies said. Also included are fees for storage, transportation, service and, in some cases, infrastructure.

Nebraska PSC Commissioner Anne Boyle of Omaha said to lower rates more, utilities could reduce their promotion budgets and spending on fancy reports.

“It seems like both are unnecessary costs,” she said.

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