Natural Gas Costs Will Be Slightly Higher This Winter

Energy efficiency improvements can help reduce bills, PSC says

FRANKFORT, Ky.– Kentucky residents who heat their homes with natural gas will see slightly higher prices at the start of the 2016-2017 heating season than they did a year ago, the Kentucky Public Service Commission (PSC) advised today.

Gas prices have risen, on average, about 12 percent from this time last year, but are still about 60 percent below the peak prices reached in 2008.

When base rates – which include monthly customer charges and delivery fees – are factored in, Kentucky residential customers can, on average, expect their total gas bills to be about 6 percent higher 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 gas costs and base rates, but not miscellaneous charges – is projected to be about $89.08.

That is up more than $5 from last year and a decrease of about $62 since November of 2008. The lower cost of natural gas has more than offset increases in base rates over that time and now represents about half of the average total residential bill, or $43.10 of the $89.08 total.

“The continued growth of natural gas supplies has maintained a steady downward pressure on natural gas prices,” PSC Chairman Michael Schmitt said. “Even with higher demand due to economic growth and greater use of natural gas to generate electricity, the supply has more than kept pace.”

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 bills, Schmitt said.

“The extended outlook is for a fairly normal winter in Kentucky,” Schmitt said. “But some areas to our north are forecast to be somewhat colder than usual, which would increase usage and could increase gas prices later in the season.”

But whatever the weather or the cost of natural gas, consumers would still benefit by taking steps to reduce consumption, he said.

“The relatively low gas prices we’ve had for a number of years have created an opportunity to invest in permanent improvements, such as weatherization, that will insulate homeowners against higher energy costs in the future,” Schmitt said.

A lower cost of gas means that base rates are now a larger portion of the total bill. 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 eight 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 stabilized at a much lower level due to an increase in supplies.

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 utilities are entitled to recover the wholesale cost of the gas delivered to their customers, including the fees they pay to interstate pipelines to transport the gas to their retail distribution systems. However, gas utilities 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 actual 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, $4.31 per 1,000 cubic feet (mcf). That is up 46 cents (12 percent) from an average of $3.85 per mcf a year ago. The average wholesale cost in 2014 was $6.17 per mcf. In August 2008, the average adjusted wholesale cost peaked at $15.17 per mcf.

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., Duke Energy Kentucky Inc., and Louisville Gas and Electric Co. 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 somewhat higher than last year, according to the U.S. Energy Information Administration.

For the 39 percent of Kentuckians who use electric heat, changes in heating costs are likely to be driven by fluctuations in fuel costs, environmental compliance costs and other items that change on a monthly basis.

Although fuel prices have been relatively stable in recent years, many Kentuckians still struggle to pay their heating bills, Schmitt noted. 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 a crisis and in danger of losing utility service,” Schmitt 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.”

The PSC is an independent agency attached for administrative purposes to the Energy and Environment Cabinet. It regulates more than 1,500 gas, water, sewer, electric and telecommunication utilities operating in Kentucky and has approximately 75 employees.

Energy efficiency improvements can help reduce bills, PSC says