Soaring natural gas prices put the chill on the outlook for winter utility bills
As winter is quickly approaching, concerns of rising natural gas prices have been presented by the United States Energy Information Administration, with its Winter Fuels Outlook predicting a 28% increase in natural gas bills for the average residential customer from November to March. This increase is predicted to add an additional $931 in costs for the winter, as about half the homes in the U.S. rely on natural gas for heating.
Higher natural gas prices are being driven by many factors, including a very hot summer and the conflict in Ukraine, which is causing global supply constraints, said Lizzy Reinholt, senior vice president of corporate affairs, sustainability & marketing for Summit Utilities, Inc., which provides natural gas to more than 400,000 customers in Arkansas.
“We cannot predict when these prices will go up or down,” Reinholt said. “It is too early for us to definitively say what the winter gas supply rate will be, but we do, unfortunately, expect the cost to be higher than last winter.”
Summit Utilities – which recently acquired CenterPoint Energy assets in Arkansas and other states – and other utilities in the state don’t make a profit on increased fuel costs, as it is a pass-through charge. Essentially, customers are charged what the utilities pay for natural gas, coal and other sources of fuels used either to provide natural gas for heating or generate electricity.
Summit’s gas supply team uses electronic competitive bidding platforms to seek out reasonable prices for supply based on market conditions, customer requirements and service obligations. According to Reinholt, Summit Utilities’ goal is to provide a diversified gas supply portfolio consisting of an appropriate combination of gas supply contracts, storage and hedging instruments across multiple suppliers that yield a balance of reliability, reduced price volatility and reasonable prices.
“Our storage contracts allow us to purchase gas in summer months at summer prices and inject it into storage,” Reinholt said. “We withdraw this gas in the winter months at the fixed summer price, which helps stabilize the gas price for our customers.”
Reinholt also said that in order to understand how increasing energy costs can impact customers, they continually take measures to secure the most reliable and lowest price possible.
“We are also focused on leveraging our communications platforms to educate our customers about energy conservation tips, energy efficiency programs, and payment assistance programs in light of higher energy costs this winter,” Reinholt said. “If customers are having trouble paying their bills, Summit will work with qualified customers to set up a payment plan and help find possible energy assistance options.”
Entergy Arkansas’ 728,000 customers in 63 counties have an advantage in that the company relies heavily on nuclear power instead of natural gas to generate electricity. According to Entergy Arkansas, its diverse mix of generation resources allows the company to use its lower-cost resources to offset those with higher costs as circumstances change.
“Last year, our nuclear generation sources set a record,” Kurt Castleberry, director of resource planning and market operations, said. “Low cost, emission-free power provides about 70% of the electricity our customers consume to help insulate them from the cost swings of natural gas. At Entergy Arkansas, we carefully plan and invest our resources to provide reliable power and keep rates as low as possible. Fuel diversity pays off and so does our investment in our nuclear fleet to keep them producing electricity at historically high levels, and increasing solar generation. In addition to keeping costs down, these sources have lower emissions, which benefits not just our customers but all Arkansans.”
Castleberry said the company’s Energy Cost Recovery Rider (ECR) rate is redetermined each spring, based on the prior calendar year’s fuel and purchased power costs adjusted for nuclear refueling outages and projected sales, plus any true-up for the under- or over-recovered fuel balances for the prior calendar year. The ECR accounts for roughly 9% of a residential customer’s total monthly bill. New rates take effect in April, unless there is a mid-year adjustment.
In April, the ECR increased from $0.00959 per kilowatt hour (kWh) to $0.01785 per kWh, or from the 2021 rate of just under 1 cent per kWh to 1.8 cents beginning with April billing. Customers received a decreased ECR rate the last two years, and the 2021 ECR rate ($0.00959) was the lowest rate in more than 10 years, according to Castleberry.
Arkansas Electric Cooperative Corp. (AECC) provides wholesale power to 600,000 members and customers through 17 local distribution cooperatives. AECC has a generation mix that includes coal, natural gas, hydro, wind and solar. AECC Director of Corporate Communication Rob Roedel said their nonfossil fuel generation sources make up about 20% of the electricity produced, which can offset some of the increases in natural gas prices.
“However, the concern is like in February of 2021 when we had Winter Storm Uri caused by a polar vortex, those resources like wind and solar were not available, and some coal plants were in a maintenance mode,” Roedel said. “So, we relied much more on natural gas. There is more reliance on natural gas now due to coal plants closing. Unfortunately, natural gas is a traded commodity. So, when demand starts outpacing supply, the price goes up.”
Before Winter Storm Uri in 2021, natural gas cost $3 per MMBTU. In 2022, costs were $4 to $5 per MMBTU. This coming winter, costs are expected to be the range of $7 per MMBTU.
“The prices are still very volatile, and we are expecting further changes,” Roedel said in late October. “We always hope for better prices, but demand is outpacing production. The U.S. is exporting a lot of liquid natural gas (LNG) to other countries, including those impacted by the shutdown of natural gas pipelines from Russia. As we continue down this path with the federal energy policy, we are concerned this may be a long-term issue for baseload generation.”
Roedel said the issue with LNG exports making domestic gas more expensive is understandable considering we are in a global economy. If for-profit companies can make more money selling LNG to other countries and create more profit for their shareholders, they are going to do that. “That is the business model,” Roedel said.
Although AECC has agreements for natural gas purchases for the coming winter, prices could still fluctuate.
“A crucial thing for people to understand is that natural gas quite often tracks along with gasoline, diesel and other petroleum-based products,” Roedel said. “I can’t guess how much the average bill will increase this winter. It depends on how cold it gets. Now is the time to check the energy efficiency of your home, make sure you have good insulation, energy-efficient windows and appliances and good sealing of doors. Any investment you make on those things will pay for themselves with lower energy bills. We have been stressing that for years.”
Robin Mizell, spokesperson for Black Hills Energy, said Black Hills Energy knows costs across the board, including energy costs, are up, and it will work diligently to procure natural gas supply with reliability and affordability in mind.
“We believe the best way to support our customers right now is to offer proactive steps to manage consumption, and in situations where energy efficiency and conservation are not enough, we like to partner with customers on bill assistance options,” Mizell said.
Mizell points out that natural gas prices have risen as a direct result of supply and demand, upending the dynamic over the past eight to 10 years when natural gas prices were relatively low.
“As Black Hills Energy does not produce natural gas, the company has an experienced gas supply team who works diligently to minimize cost impacts for customers when they purchase gas while balancing our commitment to providing safe, reliable service,” said Mizell, whose company serves 180,000 customers in Arkansas. “We meet year-round natural gas needs with a balanced and diversified gas procurement plan. Our gas storage assets in Arkansas not only provide reliable supply and operational flexibility to adjust to customer demand, but also contribute to more stable pricing. And we consistently evaluate our gas procurement plans and look for opportunities to reduce exposure to market volatility.”
Mizell said Black Hills estimates the winter cost of gas in natural gas in Arkansas to be almost double what it was a year ago.
“Circumstances may change and result in a cost that is higher or lower than this current estimate,” Mizell said. “We recognize how current market costs can impact a household budget, and we are here to help our customers manage use and bills. Black Hills Energy has a multifaceted approach to educate our customers on ways to manage monthly bills and plan for the impacts of higher natural gas commodity prices this winter. Arkansas customers may also find energy efficiency rebates, programs and services at energy-readyarkansas.com. By bringing awareness to some simple energy efficiency habits and resources, we hope to help our customers better manage their energy costs.”
Higher energy costs for Black Hills customers will be in addition to a 4.6% increase approved in October by the Arkansas Public Service Commission (APSC), which will add an estimated $4 per month to the average residential customer’s bill.
American Electric Power’s Southwestern Electric Power Company (SWEPCO) has mitigated some of the gas price volatility with owned renewable resources, coal and lignite generation, as well as term natural gas purchases planned for the winter months, said Tara L. Muck, spokesperson for SWEPCO.
Increased costs for fuels to generate electricity will come on top of a 9.49% base rate increase approved by APSC that went into effect in July. Muck said the increase reflected higher costs for generation, transmission and distribution. Muck said the increase also included their investments in cleaner power generation such as the North Central Energy Facilities, a wind facility in Oklahoma.
“While this was a base rate increase, the fuel savings and tax credits we gain with the addition of renewable energy will help offset the cost of these facilities,” Muck said.
“SWEPCO is investing in renewable energy to help reduce our reliance on fuel such as natural gas. Our long-term strategy calls for more than one-third of our energy generation mix to consist of wind and solar resources. As we increase renewable energy as part of our generation mix, we can help offset the cost to purchase fuel and ultimately provide further savings to our customers. Currently, our generation mix consists of 21% wind energy, thanks to the recent completion of the third and largest wind farm at the North Central Energy Facilities (NCEF). The NCEF provides 268 megawatts (MW) of wind energy to Arkansas customers.”
SWEPCO, which has about 125,000 customers in Arkansas, has announced plans to add up to 1,071 MW of wind and solar energy by 2025.
Muck said when the cost of fuel is found to be significantly higher or lower than the annual energy recovery rate set for customers, SWEPCO can file for interim adjustments throughout the year. That is what they did in September, when they determined that they had an under-recovered fuel balance of $44 million since Jan. 1 because of the sharp increase in fuel over such a short period of time.
“This interim fuel adjustment increased our fuel rate from 3.74 cents to 6.4 cents per kilowatt-hour,”Muck said. “This new rate is in effect from October to March 2023. For Arkansas residential customers using 1,000 kWh per month, bills beginning Sept. 28 increased approximately $12.05 per month compared to their September bill of the same usage. The new adjusted rate is in effect during winter base rates, which are lower than summer rates. The lower winter rates will help lessen the overall fuel rate impact on customers.”
In Arkansas, SWEPCO offers Home Performance with ENERGY STAR®, a comprehensive weatherization program for eligible residential customers that will help pay for energy efficient home improvements including insulation, LED lighting and caulking and weatherstripping. Muck said this is a great cost-effective way to cut annual heating and cooling costs by up to 10%.
For business customers, the Commercial & Industrial Energy Efficiency Pathway provides incentives to help Arkansas facilities reduce peak electric demand and annual energy consumption. The Small Business Pathway offers more tailor-made solutions for Arkansas small businesses that help provide energy saving upgrades at little to no cost with SWEPCO incentives.