http://www.boston.com/dailyglobe2/289/business/The_other_heating_bill_crisis_natural_gas+.shtml

The other heating-bill crisis: natural gas

By Bruce Mohl, Globe Staff, 10/15/2000

People who use natural gas for heat are in for a rude awakening this winter.

While everyone from Vice President Al Gore and Governor George W. Bush right on down to your local state representative has been talking about the crisis with heating oil, natural gas utilities have quietly been filing winter rate hikes with state regulators that register pretty high on my crisis meter.

On average, gas utilities in Massachusetts plan to increase the typical customer's bill by about 24 percent. In real dollars, that works out to about $33 a month, or nearly $200 for the November-through-April period.

According to George Yiankos, director of the gas division at the Department of Telecommunications and Energy, the increases being sought by the gas companies are the highest in percentage terms he has seen.

Even more surprising, given all the attention to heating oil, the price increases for gas are keeping pace with - and may even exceed - those forecast for heating oil.

The US Energy Information Agency, in its winter fuels outlook this month, said the increase in natural gas prices will be much greater than for propane or heating oil. ''Natural gas households are likely to see the largest year-over-year percentage increase in fuel bills of any heating fuel,'' the report said.

The government report said the high prices are largely a result of reduced exploration and production, caused largely by price declines in 1998. Even as production has sagged - a situation industry officials hope will be temporary - demand has grown rapidly, particularly from electric utilities.

The supply-demand imbalance has caused wellhead prices for natural gas to double. Local gas companies say their winter rate hikes are a straight pass-through of the higher prices they are paying for gas.

In the bill-impact statement it filed with the DTE, Boston Gas projects its typical heating customer will spend $1,032 this winter on gas. That's up 24.4 percent from last year.

To put that in perspective, I converted the cost of the gas into the equivalent price of heating oil. It works out to $1.49 a gallon.

Most consumers have probably heard that natural gas prices will be higher this winter, but the focus in the media and among consumers has been on heating oil. You haven't seen too many front-page stories about the price of natural gas. You haven't seen many government summits on gas. And you haven't heard Joseph P. Kennedy II fretting about the cost of gas the way he does about oil.

David O'Connor, executive director of the Division of Energy Resources, acknowledged consumers are probably less familiar with what's going on with gas. ''It hasn't gotten the same play,'' he said.

But O'Connor makes no apologies for his office's emphasis on the heating oil situation. He said the price of both fuels will be high this winter, but he said the likelihood of a heating-oil shortage is far greater because of low inventories, unstable world markets, and the regional nature of the heating oil market.

O'Connor also said his emphasis has been on heating oil because heating-oil customers have some options. For example, they can lock in a price now for the whole winter or sit back and take their chances. Gas customers, by contrast, have to pay whatever their utility charges them.

O'Connor's right, of course, but I think there's another reason why consumers haven't focused on the rapidly increasing price of natural gas. The reaction has been muted because most consumers don't understand their gas bill. The bill tells you how many therms of gas you use each month and how much you are charged for those therms, but who knows what a therm is?

State regulators are moving forward with an effort to deregulate the natural gas business the same way they deregulated the electricity business. In a matter of months, I'm told, you will be able to shop for a gas supplier the same way you theoretically can shop for an electricity supplier. Your local gas utility will still deliver the gas to you and still be regulated.

No word yet on whether gas bills will become more understandable in the process.

-- (in@the.news), October 15, 2000

Answers

Personally, I think it's a real shame that so much of such a clean fuel as natural gas is being burned by electric utilities to generate electricity. It's a free market, but I just think the cleanest fuels are best used in places like home heating systems that can't afford to have extensive pollution controls. Oh, well ...

In 1975-6 I wrote some software for a utility company in Tulsa to calculate average and total prices it was paying for natural gas it purchased for that very purpose -- to burn to generate electricity. I kept sighing all the way through it (for the reason given above), but did my best to come up with a program to help the company most economically use the natural gas it had under contract.

During my work, some effects of the price controls President Nixon imposed on the petroleum industry became very clear. The figures showed the stark differences between prices paid for "old" and "new" gas (a legal distinction imposed by the federal price-control laws). The price the utility paid for gas from some wells was one-fourth (or so) the price it paid for gas from other wells in the same general area. Gas well owners were prohibited by federal law from raising the prices they charged for "old" gas, so they had no financial incentive to do anything to increase production from those wells, whose output therefore just kept falling. And the electric utility had no incentive to go to any other fuel because it had its low, low prices for natural gas locked in by the feds.

Always remember, kiddies -- despite what Republicans claim about their desire for smaller government and less regulation, it was a _Republican_ President (Nixon) who imposed the first peacetime federal wage and price controls in U.S. history. People couldn't get raises without federal permission, and beef disappeared from supermarkets for a while because ranchers couldn't freely negotiate prices for selling their cattle to slaughterhouses. Never forget that.

-- No Spam Please (nos_pam_please@hotmail.com), October 16, 2000.

State regulators are moving forward with an effort to deregulate the natural gas business the same way they deregulated the electricity business.

Hopefully they won't encounter the same problems people in California had with electricity deregulation.

-- (hmm@hmm.hmm), October 16, 2000.