Natural gas costs at the start of the 2012-2013 heating season are projected to be lower than at any time in the last 10 years, the Kentucky Public Service Commission (PSC) said today.
On average, Kentucky customers can expect to pay about 12 percent less this November than last if they consume 10,000 cubic feet of natural gas. The average total bill for 10,000 cubic feet – including base rates – is projected to be about $85.55.
That is down more than $65 since November of 2008 - a decrease of 43% over the last four years. The lower cost of natural gas has more than offset any increases in base rates over that time.
“Natural gas prices have remained relatively stable since late 2009, in contrast to the very large fluctuations in prior years,” PSC Chairman David Armstrong said. “Increasing gas supplies are projected to provide price stability in the coming years as well.”
But weather – not price – is always the largest factor in determining the amount of energy that consumers use to heat their homes and thus the size of their heating bill, Armstrong said. Improving energy efficiency is the best weapon consumers have to manage their energy costs, he said.
“Consumers should always look for ways to reduce energy usage,” Armstrong said. “It is wise to invest a portion of the current savings in permanent improvements, such as weatherization, that will pay off by reducing energy consumption and thus help insulate consumers from higher energy costs in the future.”
Wholesale costs this year are, on average, about 20 percent lower than a year ago. None of Kentucky’s five large natural gas distribution companies have received base rate increases in the last year.
Wholesale prices over the last three years have remained at less than half the peak prices seen in 2008. Wholesale costs make up the largest portion of retail gas bills during the heating season. They are 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.
The amount of natural gas in storage for use during the winter is at an all-time high, according to data from the federal Energy Information Administration. That suggests adequate supplies and stable prices through the heating season, unless there is widespread and extreme cold weather.
Wholesale natural gas prices last spiked in 2008, and then declined even more abruptly in 2009. Prices have remained in a fairly narrow range 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 wholesale cost of 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, $4.43 per 1,000 cubic feet (mcf). That is down $1.13 (20 percent) from an average of $5.56 per mcf a year ago.
In August 2008, the average adjusted wholesale cost peaked at $15.17 per mcf. In November 2002 the average adjusted wholesale cost was $4.90 per mcf ($6.07 adjusted for inflation).
The wholesale cost of natural gas now accounts for just over half of a typical consumer’s winter bill. A typical Kentucky customer using 10 mcf next month will pay a total monthly bill of $85.55, down $11.40 – or about 12 percent - from the $96.90 average bill a year ago.
That decrease 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. Those who heat with propane (10 percent) can expect slightly lower costs than last year, while those heating with fuel oil (3 percent) will see slightly higher costs than last year.
The 39 percent of Kentuckians who use electric heat are likely to see somewhat higher bills on average this winter.
Although the slow pace of economic growth has helped keep fuel prices stable, it also has left many Kentuckians struggling 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.”
A slide show on natural gas prices during the coming winter is available on the PSC website, http://psc.ky.gov.
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 90 employees.