BILLS UP ON 3 FRONTS: Gas, electricity pricier … and the weather isn't helping

Todd Wallack, Chronicle Staff Writer Wednesday, December 27, 2000 ©2000 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/12/27/MN191107.DTL

Brace yourself before opening your next PG&E bill. Consumers and businesses alike are getting walloped by a triple whammy that promises to raise energy bills across the state this winter:

-- Natural gas. Strong demand has pushed wholesale natural gas prices to record levels. In Northern California, Pacific Gas and Electric Co. estimates that the average gas bill will rise more than 50 percent to $77 this month, up from $50 last December. Now PG&E is warning customers that prices could go even higher in coming months.

-- Electricity. The California Public Utilities Commission plans to give utilities permission to increase electric rates as early as next week. Regulators have not announced the size of the increase yet, but observers say that it is likely to be between 10 percent and 20 percent. The average PG&E customer now pays about $54.50 per month for the electric portion of their bill.

-- Weather. Customers typically use more power to heat their homes during the coldest months of the year, so bills would normally go up even without a rate increase. In at least half of homes, customers use natural gas for heating. A significant percentage use electric heaters. But even in homes where residents rely exclusively on natural gas, propane or oil for heat, customers are also likely to run up higher electric bills in the winter. That's because most heating systems still use electricity to power the fans that blow the warmer air throughout the home.

"It's pretty crazy," said analyst Tom Haywood about natural gas prices, which have increased sixfold in Northern California in the past year. Haywood is markets editor for Financial Times Energy, which publishes Gas Daily and other industry newsletters.

Of course, all three factors are intertwined.

Prices generally increase when demand for power soars in the summer and winter. But recently, supplies have not been able to keep up with demand.

MORE DEMAND, LESS SUPPLY

The economic boom, particularly in Silicon Valley, has pushed demand for both electricity and natural gas to new heights.

But with stiffer environmental regulations and the uncertainty of deregulation in California, power companies have not built any significant new electric generators in years.

On top of that, several electric plants in California have been shut for maintenance.

Moreover, drier weather in the Pacific Northwest has reduced the levels of rivers and, consequently, the flow of power from giant hydroelectric plants straddling the waterways. Wholesale electric prices on the California-Oregon border have averaged $615 this month per megawatt hour, compared with just over $31 a year ago, according to the Bloomberg Energy Service. At times, the price has spiked as high as $1,500. A megawatt hour lights 1,000 U.S. homes for an hour.

So, where does gas come in? Part of the supply is used simply to heat a growing number of houses and buildings. But much of it is diverted to electric plants, which are trying to convert an ever-increasing amount of natural gas to electricity.

But much like electricity, the supply of natural gas is restricted. Prices have soared nationwide because of low temperatures in the Midwest and Northeast.

NATURAL GAS PIPELINES LIMITED

Worse, California can pipe in only a limited amount of natural gas from fields in other states. Experts say the state hasn't built enough or large enough pipelines to keep up with the demand.

Still, even analysts say they are surprised by how much prices have jumped. Prices on the spot market for Northern California rocketed from roughly $2.50 per million British Thermal Units last December to a high of more than $50 earlier this month. Prices have since slipped back to around $15, but that's still up sixfold from a year ago.

A British Thermal Unit, the standard unit used by natural gas traders, refers to the amount of gas required to raise the temperature of one pound of water by one degree Fahrenheit when burned.

Nationwide, prices have also risen, but nowhere as much as in California. Prices on the spot market locally have often been twice as high as the rates for other cities.

Haywood said prices have occasionally spiked across the country during short, extreme periods of demand, but he couldn't recall prices ever remaining so high for so long.

WEATHER A FACTOR

Haywood said prices appear to be holding steady for now, indicating that there is not likely to be much relief in sight for consumers. But the weather is the wild card. A cold front could make the situation worse as residents crank up the heat and drive demand higher. A warm front could help lower demand.

"The weather is a big factor," said David Costello, an economist with the federal Energy Information Administration. "If you get some warm weather in Northern California, that would ease a lot of things. But most people don't bet on those things."

Costello also said it is possible that prices could tumble if enough people took measures to conserve power and reduce demand.

But in the short term, angry consumers have started calling and writing the PUC with complaints about soaring bills. Many consumers have already seen the increase in their gas bills, and they are worried about the coming surge on the electric bills.

Linda Woods, a manager for the PUC's consumer affairs branch, said many people are specifically angry at state regulators for not keeping a lid on rates. Woods also said many consumers are confused about the difference between electric rates, which are set by state regulators and haven't changed, and gas prices, which are not regulated and have already soared.

"Most people lump those two together and don't look at the details," she said. Woods, however, said the agency hasn't received a flood of extra calls in the past week, possibly because many people are busy traveling or visiting family for the holidays.

ASSISTANCE AVAILABLE

Meanwhile, PG&E says it might be able to help some customers having trouble paying their bills.

First, the power company often lets customers make arrangements to pay off a balance over several months. "They should just give us a call," said spokesman Jon Tremayne.

Second, PG&E said, it recently expanded a program to help more low-income families.

The program, Relief for Energy Assistance through Community Help, provides once-a-year payments of up to $300 to help families pay their bills, up from $200 in the past. To qualify, customers must earn no more than double the federal poverty level. (A family of four, for instance, is eligible if it earns less than $34,100.) Although that doesn't seem like much in the pricey Bay Area, PG&E recently raised the income threshold by one-third so more families would qualify.

For more information about REACH, families can call the Salvation Army, which administers the program, at (800) 933-9677.

In addition, customers who earn no more than 150 percent of the federal poverty level (or $25,800 for a family of four) can ask for a 15 percent break on their energy bills every month.

PG&E estimates that 340,000 customers now take advantage of the California for Alternate Rates for Energy Program, saving an average of $9.21 per month on their electric bill and $3.43 on their gas bills. Call (800) 743-5000 to sign up or request more information.

NO BLACKOUTS THIS WEEK

On the bright side, officials say they doubt they will need to declare a power emergency this week.

In recent weeks, regulators have repeatedly warned that electric supplies were so low that they might have to cut off huge swaths of residents for hours at a time in so-called rolling blackouts.

But many schools and businesses are shut down between Christmas and New Year's, lowering the strain on the state's power grid. In addition, holiday revelers are also starting to switch off their Christmas lights. The California Independent System Operator, which runs the power grid, estimates that the holiday lights used 1,000 megawatts of power -- enough to light 1 million homes.

"We're in pretty good condition," said Lorie O'Donley, a spokeswoman for the California ISO. "We're not expecting any kind of emergency situations unless something unforeseen happens."

O'Donley said she expects power use to gradually increase after New Year's as workers and students return from vacation.

Meanwhile, Wall Street continued to be concerned about the financial health of PG&E and another large California utility, Southern California Edison. The utilities say they have borrowed $8 billion to buy electricity as wholesale costs have surged -- expenses they haven't been able to pass along to consumers.

In an attempt to help them avoid bankruptcy -- and persuade lenders to continue giving them cash to pay their bills -- state regulators plan to hold hearings this week to consider a rate increase. The PUC could vote on a plan as early as next week.

But some investors have been disappointed that the PUC didn't approve an immediate increase last week. And investors shrugged off a meeting yesterday between California Gov. Grav Davis and Federal Reserve Chairman Alan Greenspan in Washington.

Shares of PG&E slipped 25 cents to $19.91. Edison International, which owns Southern California Edison, slipped 19 cents to $16.06.

-- Martin Thompson (mthom1927@aol.com), December 27, 2000