01/07/2011 03:26 pm ET | Updated May 25, 2011

Moderate Fuel Prices Should Keep Heating Bills in Check

This article was published in The Louisiana Weekly in the Dec. 27, 2010 edition

Huge, home-heating bills in first-quarter 2010 are an unhappy memory. But southeast Louisiana residents may not have to dig as deeply into pockets in early 2011 to stay warm, experts say. After cold snaps in early and late 2010, the months ahead should be milder than normal, according to government meteorologists. If those weather forecasts pan out and natural gas prices stay moderate, heating costs won't be last winter's, budget-torpedoing shock.

"Heating costs should be lower this winter since natural gas prices are down," said David Dismukes, associate executive director and professor at Louisiana State University's Center for Energy Studies. "Natural gas prices are down because of considerable, new supplies from shale, along with high inventories of gas in storage and relatively tepid demand -- particularly on the industrial side."

The chief influence on natural gas prices this winter will be demand, determined by the pace of the nation's economic recovery and weather, Dismukes said. Given the economy's continuing, but relatively slow improvement, he doesn't expect any, big shifts in national gas usage in early 2011. The U.S. recession ended in mid-2009, according to the National Bureau of Economic Research.

Southeast Louisiana was frigid in December but the region is slated to be warmer than normal for the rest of the season, according to the National Weather Service. Dismukes recalled that "2005 was very cold in November and December, but then we went on to have the warmest January on record."

The NWS expects La Nina conditions -- unusually cold, ocean temperatures in the Equatorial Pacific -- to persist into spring, affecting its January to March outlook for the country. Below-normal temperatures are forecast for the Pacific Northwest and the northern U.S. to the western Great Lakes but the central and southern U.S. are slated for above-normal temperatures.

Unanticipated events, of course, cannot be ruled out in the natural gas market. Prices, for example, spiked to nearly $16 per million British thermal units on the New York Mercantile Exchange in late 2005 after Katrina disrupted supplies. In comparison, natural gas is now hovering a bit above $4.00.

Karl Weber, a spokesman in Metairie for Atmos Energy Corp., said natural gas costs account for almost three-fourths of totals on bills that the company sends to customers. "The charge for natural gas is a pass-through so we do not profit from it," he said. "The cost is noted on customer bills as the Purchase Gas Adjustment." Based in Dallas, Atmos Energy operates in twelve states and serves 340,000 Louisiana customers in 49 parishes, including Jefferson, Plaquemines and St. Tammany, but excluding Orleans.

Weber explained how the company shields itself and customers from natural-gas price swings. "To supplement our winter supplies, Atmos Energy typically purchases and stores large volumes of natural gas during the spring and summer when prices are lower," he said. "We use both physical storage and special financial tools to hedge a portion of our total gas supply for customers, helping to moderate the effects of market-price volatility." Hedging protects utilities against fluctuations in fuel prices.

Weber, like Dismukes, pointed to sizable gas supplies nationally and the government's warmer-than-usual forecast for the southern and central U.S. "If gas prices remain below a year ago, and customers use the same amount or less heat at home than last winter, their bills could be smaller this winter," Weber said.

At Entergy New Orleans, Inc., a subsidiary of Entergy Corp., coal- and nuclear-generated power are the main fuels used to produce electricity that heats many of the city's homes. When demand increases in the winter or summer, however, Entergy buys more electricity from the spot or cash market, and then the share of power that it consumes from natural gas-fueled plants increases.

Changes in fuel costs paid by Entergy New Orleans show up on customer bills as monthly fuel adjustment charges, and are passed on to consumers with a two-month lag. January's fuel prices are, for instance, reflected in March's electricity bills.

"Our fuel adjustment charges vary from month to month, and are based on market prices that we have no control over," said Philip Allison, Entergy New Orleans spokesman. "The fuel adjustment charge is passed on to customers dollar for dollar," and the company does not profit from ups and downs in fuel prices, he said.

For Entergy New Orleans customers, "the biggest factor in a home heating bill is consumption so residents trying to lower their bills should find ways to reduce how much electricity they use," Allison said. The company's website offers short- and long-term tips for trimming usage in the winter, he noted.

You probably already know some of the tips suggested by Entergy New Orleans and have discussed them with neighbors or contractors, but may not have adopted all of them. The company recommends caulking and weather-stripping doors, windows, attic entrances, fireplaces and other sources of drafts. In addition, try to make duct work airtight, and install 6 to 12 inches of attic insulation. In the winter, set your thermostat to 68 degrees or the lowest comfortable temperature, and leave it there. Each degree of heat above 68 adds 3% to your bill, the company says. Open curtains and window shades during the daytime to benefit from the sun's warmth.

Another way consumers can trim expenses in the winter and year round is to reduce "phantom electricity" demand or power used while they're at work or out of town, Allison said. "Anything that's plugged in and has a light or clock lit -- like a computer, telephone, or cable TV -- is using some electricity," he noted.

To protect customers against fuel price volatility, Entergy New Orleans uses a portfolio of fuel sources and avoids dependence on one source, Allison said. And the company uses centralized procurement to buy fuel for the entire Entergy system, paying lower prices for bulk purchases.

Dismukes pointed to ways that utilities cope with natural-gas price swings."Local gas companies hedge, and it's usually for about 30% of their requirements, although this varies by utility and market conditions. I suspect that hedging percentages are on the low side right now because so much cheap gas is available on the spot market."

Hedging, he said, takes a number of different forms that include using storage, like buying lower-cost gas in summer, and placing it in either the company's or contracted storage for winter use. Other ways that utilities hedge are through fixed-price contracts and through so-called "collared" price contracts -- which set floor and ceiling prices. Another means is through the NYMEX and other futures markets, and yet another is through simple, month-ahead transactions with suppliers.

Dismukes said "believe it or not, local gas companies rarely use NYMEX futures for hedging purposes. And to the extent that they do use them, it's been my experience that futures hedges only comprise a small share of their overall, 30%-hedged position."

Meanwhile, for all the emphasis on protecting consumers against swings in fuel prices, an administrative law judge for the Federal Energy Regulatory Commission ruled earlier this month that Entergy Corp. overcharged customers in Louisiana, Mississippi, Texas and Arkansas from 2000 to 2009. The judge ruled that Entergy sold higher-priced power to its own subsidiaries, including Entergy Louisiana, Entergy Gulf States Louisiana and Entergy New Orleans, and that it sold lower-cost power to outside parties.

Regarding that decision, Deanna Rodriguez, vice president of regulatory affairs for Entergy New Orleans, Inc., said "the administrative law judge's ruling is just the first step in a multi-step process." She said Entergy believes that "the challenged sales were appropriate and consistent with the company's System Agreement" between all Entergy utility companies. Under that agreement, subsidiaries buy and sell power from one another.

Entergy Corp. plans to file an appeal on the FERC judge's ruling in January, Rodriguez said. "After all of the information is provided and the appeal is considered, appropriate actions will be taken to address any impact to customer bills," she also said.

Meanwhile, for elderly and disabled residents struggling to pay heating bills, Entergy partners with the New Orleans Council on Aging to provide emergency, utility assistance through a fund called The Power to Care, Allison said. Entergy, its employees and customers contribute to the fund. Inquiries about The Power to Care can be directed to the New Orleans Council on Aging.

Atmos Energy collects donations from customers and matches them in its Sharing the Warmth Program to assist residents unable to pay heating bills.

Another avenue for cash-strapped customers is a federal and state program called Low Income Home Energy Assistance Program or LIHEAP that helps residents pay energy bills. In New Orleans, LIHEAP funds are administered by Total Community Action, which can be reached by phone at 504-324-8609.

On trips around town, you've probably seen trenches that were dug in and along city streets after Katrina's flood waters corroded natural-gas pipelines. In a massive rebuild, Entergy New Orleans began reconstructing the city's gas pipelines in 2007, and is also converting its local, low-pressure gas system to high pressure -- a move that the company says will improve service. end