FRANKFORT, Ky. (Oct. 30, 2009) – Sharply lower wholesale natural gas prices will mean smaller heating bills for Kentucky customers this winter, the Kentucky Public Service Commission (PSC) says.
“Natural gas prices have come down considerably from the artificially high levels of last year,” PSC Chairman David Armstrong said. “Furthermore, there is reason to think that we may see relatively stable prices for the next several years.”
On average, Kentucky customers can expect to pay about 39 percent less this November than last for 10,000 cubic feet of natural gas. Individual reductions will vary by company and customer usage.
Wholesale prices are at their lowest levels in at least six years, and are 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.
The amount of natural gas in storage for use during the winter is at historically high levels, 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.
Weather is always the main factor in determining the amount of energy that consumers use to heat their homes and thus the size of their heating bill, Armstrong said. Improvements in energy efficiency and conservation are the only way to permanently lower energy bills, he said.
“Lower energy prices do not negate the wisdom of taking steps that will reduce energy consumption in the long term,” Armstrong said. “Consumers would be wise to turn some of their immediate savings into permanent investments in weatherization and other measures that will pay off in coming years.”
Last year’s spike in wholesale natural gas prices was the second in three years. But unlike 2005, when prices skyrocketed after hurricanes Katrina and Rita shut down natural gas production on the Gulf Coast, last year’s spike was not due to an imbalance between supply and demand. Rather, it appeared to be the result of speculative investments in commodity markets, including natural gas.
“Natural gas markets have experienced considerable instability over the last several years,” Armstrong said. “Recent data suggest the markets may be settling down.”
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, $5.61 per 1,000 cubic feet (mcf). That is down $6.09 (52 percent) from an average of $11.70 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.
The wholesale cost of natural gas accounts for about three-fourths of a typical consumer’s winter bill. A typical Kentucky customer using 10 mcf next month will pay a total monthly bill of $92.08, down $58.70 – or 38.9 percent - from the $150.78 average bill a year ago.
That decrease is an average for Kentucky’s five major local natural gas distribution companies. It will change as companies make further wholesale cost adjustments throughout the heating season. The figure for any given customer depends on the gas company and individual usage patterns.
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) and fuel oil (3 percent) also will be paying less than a year ago.
The 39 percent of Kentuckians who use electric heat are expected to see relatively little change in their energy bills this winter. As in past years, the cost of coal – which is used to generate more than 90 percent of Kentucky’s electricity – has fluctuated less than the cost of other fuels.
Energy prices have moderated in large part because the sagging economy has reduced demand, Armstrong said. The economic slump means that many Kentuckians will continue to have difficulty paying their heating bills, even with the lower costs this winter, he said. Heating assistance is available from utility companies and local community action agencies, but funds are limited and sometimes run out during the heating season, he said.
“Do not delay looking for assistance until a difficulty has become a crisis,” Armstrong said. “Now is the time to take the necessary steps if you think that you may need help paying your heating bill this winter.”
A briefing held today on natural gas prices will be available for viewing at a later time in streaming video format in the PSC’s video library, at http://psc.ky.gov/Home/Media. A video of the briefing also will be available for download on the PSC’s FTP site, ftp://162.114.3.167/.
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 100 employees.
