Natural Gas Prices Down Again

Despite price declines, many consumers have not seen savings on bills
By M.D. KITTLE TH assistant city editor
If there's a silver lining to the clouds of economic gloom and doom, it's that the recession has been such a drag on demand that it's pulled down energy prices.

Natural gas prices continued to plummet Friday, as demand fears sent prices falling for a fifth straight day. With almost spring-like temperatures reported in much of the U.S. in recent weeks and energy consumption in the industrial sector diminished by the stalled economy, natural gas prices in some regions have slid by as much as 40 percent.

In Iowa, prices over the winter heating season to date (November-early February) are down about 9 percent, according to Black Hills Energy, which serves about 41,000 customers in the Dubuque area.

But a lot of consumers might be scratching their heads. The price declines have yet to materialize on average billing statements.

That has a lot to do with how energy providers purchase their heating fuel. Black Hills, formerly Aquila, like its peers, buys much of its natural gas stock months in advance of the winter heating season, a strategy aimed at curbing
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the wild swings of a volatile energy source. The idea is sound; typically prices are much cheaper in summer or early fall than they are on the spot market in the dead of winter -- when demand is at its highest.

But it doesn't always work. Case in point, the last couple of weeks.

"In terms of the prices we locked in at, yes, unfortunately some of those prices are higher than what they are right now," said Alliant Energy spokesman Steve Schultz. "This has been anything but a typical year."

Alliant's average residential natural gas customer in Wisconsin paid about $195 in January, up about 6 percent from January 2008. Much of that increase was driven by demand, with a seemingly endless string of days marked by below-zero temperatures.

The typical Black Hills Energy residential customer in Dubuque paid about $180 last month, and $120 in December, according to company spokesman Brian Ortner. He could not provide pricing comparisons for the same months in the previous year because of the ownership change.

Utilities only pass through energy prices to consumers, they are not to profit from them.

Black Hills Energy's Colorado consumers could see a big natural gas rate break thanks to declining prices on the open market. The energy provider filed a request with the Colorado Public Utilities Commission to cut by 28 percent the cost per unit of natural gas for its residential, commercial and industrial customers. Under the proposal, a typical residential customer would pay about $156, compared to $214 on a monthly bill during peak usage.

Asked if Iowa customers could see a pricing break, Ortner said, "You would hope so." He noted much depends on usage.

Like other energy providers, Alliant purchases about one-third of its natural gas on the spot market, so the lower pricing should eventually be realized in billing statements -- if prolonged cold and, consequently, demand don't push prices back up. Given the state of the economy, odds are demand, on the industrial side at least, should stay down.

The Energy Information Administration projects total natural gas consumption will decline by 1.3 percent in 2009, before seeing a slight increase next year.

Customers on so-called budget billing plans could be seeing red as spot natural gas prices continue to fall. The customers, who pay a consistent rate every month in order to take the volatility out of their monthly bills, in many cases end up paying more as market prices fall.

Black Hills had about 38,000 customers in the program in January.