With U.S. awash in natural gas, why aren’t fuel bills falling?
By Steven Mufson,
Here’s a question a lot of homeowners are asking: If there is so much cheap natural gas floating around the United States, why aren’t people’s fuel bills falling?
The answer is that fuel is only part of the fuel bill. A lot of what homeowners pay goes to building new power lines or tending to aging gas pipelines. In one recent rate case, a utility got a rate increase to cover pension costs.
Moreover, electric utilities, burned by sudden natural gas price spikes last decade, have learned to spread out contract negotiations. For Pepco, each year it bids for a third of the electricity it needs from power suppliers. That smooths out changes in electricity prices, but it also delays the full effect of lower prices.
“In the contracts we’ve been receiving, we are seeing a reduction in the supply cost that is driving the energy portions of the bills down,” said Bill Gausman, senior vice president of strategic initiatives for Pepco Holdings. “Because we’re only bidding a third of our supplies, the impact is not as big.”
Most electric utilities also rely on a variety of energy sources. Cheap natural gas, the result of new supplies of shale gas in the past four or five years, is moderating fuel prices. But it is just one part of the fuel cost that includes coal, nuclear and renewables that go into a regional grid.
Pepco says 72.2 percent of the typical electricity bill in the District is made up of fuel costs, while distribution eats up 19.2 percent; transmission, 2.2 percent; and surcharges and taxes, 6.4 percent.
Low natural gas prices did not stop Washington Gas earlier this year from seeking a revenue increase of 14 percent from regulators on the D.C. Public Service Commission.
“WGL is proposing to expand an existing program for replacing and encapsulating certain old mechanical couplings,” the PSC said. It said Washington Gas was approved “to include the accelerated replacement of pipes in its system that are nearing the end of their useful life.”
But the customers of gas utilities are getting some benefits from the low natural gas prices.
“You’re not seeing the same unaffordable bills people were opening up four or five years ago,” said Tyler Slocum, an energy expert at Public Citizen. “It was just astronomical. You’re not seeing that level.”