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Natural gas costs to increase slightly this winter

PSC said consumers can reduce bills through energy efficiency

FRANKFORT, Ky. (Oct. 31, 2014) – Natural gas costs at the start of the 2014-2015 heating season will be only slightly higher than last year.

gasGas prices remain well below the peak reached in 2008, the Kentucky Public Service Commission (PSC) reported.

On average, Kentucky customers can expect to pay about 4.58 percent more 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 $106.48.

That is down more than $44 since November of 2008 – a decrease of 29 percent. The lower cost of natural gas has more than offset increases in base rates over that time.

“Thanks to abundant supply, natural gas prices have remained fairly steady for several years,” PSC Chairman David Armstrong said. “That is despite rising demand as more natural gas is used to generate electricity and as the overall economy continues to improve.”

Weather – not price – is the dominant factor in determining the amount of energy that consumers use to heat their homes and thus the size of their heating bill, Armstrong said.

“Many Kentuckians saw unusually high heating bills last winter due to the extended spell of extremely cold weather,” Armstrong said. “The weather forecasters tell us we are unlikely to experience another Polar Vortex in the coming months.”

Whatever the weather, the best weapon consumers have to manage their energy costs is to take steps to reduce consumption, he said.

“The best thing consumers can do is take advantage of the relatively low energy costs now and invest in permanent improvements, such as weatherization, that will provide insulation against higher energy costs in the future,” Armstrong said.

Natural gas costs this year are, on average, about 3.7 percent higher than a year ago. Two of Kentucky’s five large natural gas distribution companies have received a base rate increase in the last 12 months, which is why the overall average increase is higher than the average increase in the cost of gas itself.

The commodity cost of natural gas makes up the largest portion of retail gas bills during the heating season. The commodity cost is passed through to consumers on a dollar-for-dollar basis by local distribution companies.

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 since a sharp upward turn in 2008. Prices declined even more abruptly during the economic downturn in 2009, and have remained relatively stable since then.

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, $6.17 per 1,000 cubic feet (mcf). That is up $0.22 (3.7 percent) from an average of $5.95 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 more than half of a typical consumer’s winter bill. A typical Kentucky customer using 10 mcf next month will pay a total monthly bill of $106.48, up $4.67 – or about 4.6 percent – from the $101.81 average bill a year ago. The average cost of gas for that typical customer is $61.70.

The projected 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.

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 one 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, Armstrong 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 allow a difficulty in paying a utility bill to become a crisis,” Armstrong said. “Now is the time to take the necessary steps if you think that you may need assistance in paying your heating bill this winter.”

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