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Editor’s Note: In this five-part series, NGI is taking an in-depth review of natural gas utility rates across the country and how – and why – they have escalated since 2021. Part 1 delves into the escalating consumer costs in New York and New England. Part 2 focuses on how natural gas rates on the West Coast have risen. Part 3 will take a look at the costs consumers will be paying in the Southeast and Florida, which takes into account the fallout from Hurricane Ian. Part 4 takes a trip to the Appalachian Basin and how rates there are responding to winter fears, while Part 5 takes a dive into what consumers can expect in the coming months in the Midcontinent.
In a colder-than-average winter, the U.S. Energy Information Administration (EIA) reported the average household could spend as much as 51% more on natural gas this winter compared with last year.
The agency said in its 2022 Winter Fuels Outlook (WFO) that a 10% colder winter (October to March) could have consumers paying 37% more year/year for heating oil, 20% more for electricity and 36% more for propane.
The price an average home would pay may still rise with a 10% warmer winter, according to the EIA. The year/year change for natural gas expenditures would be a 19% increase, a 12% jump for heating oil and an 8% rise in the cost of electricity. If a warmer winter ensues, the average household could see a 12% decrease year/year in the cost of propane.
[Trying to understand where the price of natural gas at the Henry Hub is headed? Learn more about what to watch when analyzing the North American natural gas market with this episode of the Hub & Flow podcast. Listen now.]
The American Gas Association noted in its mid-October Natural Gas Market Indicators report that, excluding the Pacific Coast, all U.S. regions have experienced colder temperatures this shoulder season compared with last year, with the week of Oct. 8 ending 233% colder year/year.
What’s more, the Farmers’ Almanac’s 2022-2023 Extended Winter Weather Forecast is predicting an active storm track to dominate the eastern half of the country, from the Gulf of Mexico to the interior of New England. Caught in the middle, West Virginia and western Pennsylvania could see an “unreasonably cold, snowy” winter, according to the Almanac.
While demand amid a cold winter could drive consumer prices higher, this past summer’s heat drove natural gas prices up as consumption outpaced production growth in the first half of the year, EIA noted.
NGI’s Patrick Rau, director of strategy and research, said in Appalachia, “things have really slowed significantly, production-wise, growth-wise…just because we’re starting to run up against pipeline takeaway capacity there.
“It’s really going to take more large pipeline takeaway projects out of the Appalachia to grow that much in the future,” he said.
One potential solution could be the embattled 303-mile Mountain Valley Pipeline (MVP), Rau noted. “This is a pipeline that’s almost 100% complete and that hasn’t been able to go into service for several years now. And despite some recent momentum in Congress, there are still some major question marks as to whether MVP ever comes online.
“If it does, it’s going to add 2 Bcf of capacity. That would help not only grow production, but also keep the basis differentials in the Appalachia better than they otherwise would be. But we’re going to get to a case where it’s going to be really hard for Appalachia prices to improve relative to those at the Henry Hub, the basis differential, if the region isn’t able to solve the takeaway problem, and that’s really much in doubt.”
Mountaineer Gas Co., a Charleston, WV-based natural gas local distribution company (LDC) serving about 220,000 customers, applied in late July with the West Virginia Public Service Commission (PSC) to change its purchased gas adjustment (PGA) rates beginning next month.
“Over the past several years, Mountaineer Gas Co. has faced gas-on-gas competition from a variety of sources” the LDC stated in a filing. It cited a 2013 case in which United Gas Pipeline Co. LLC applied to bypass the LDC and construct a natural gas pipeline, which was ultimately rejected by the PSC.
In response to competition, Mountaineer said it has acquired more customers, enhanced transportation service and undertaken “aggressive and necessary” discounting of transportation rates.
While Mountaineer has been able to compete and maintain its throughput for customers, the LDC noted the current economy and resulting changes in customers’ behavior have resulted in declines in throughput.
In its initial filing, Mountaineer proposed raising its PGA rates for residential customers by $4.180/Mcf to $9.850, a 73.72% increase. The proposed rates were based on the New York Mercantile Exchange closing prices on July 26.
In early September, the PSC ordered Mountaineer, as well as other West Virginia utilities raising rates, to propose methods to levelize the impact of high gas prices on customers. Other utilities cited by PSC included Cardinal Natural Gas Co., Standard Gas Co., Peoples Gas WV LLC, Canaan Valley Gas Co., Consumers Gas Utility Co., Hope Gas Inc., Southern Public Service Co., Union Oil and Gas Inc. and A.V. Co. Inc.
Commissioner Karen Buckley said in a PSC order “that modification of the standard manner of implementation of interim purchased gas rate increments is needed in response to the extremely high gas prices that have driven large rate increase requests by West Virginia gas utilities serving a majority of gas customers. It is reasonable to lessen the sudden and significant rate shock for customers that will occur, absent commission action, on Nov. 1, at the same time that customers’ gas usage will increase sharply with cold weather.”
Mountaineer met with the regulators, consumer advocates and other gas utilities to develop measures to reduce the impact of high natural gas costs on customers in the near term, according to filings.
Mountaineer proposed a reduction to the initial PGA rate of $1.00/Mcf to $8.850. The rate would be in effect from November through March. The average residential customer would see bills $11/month lower than initially expected. However, rates still would be rising by about 26.4% over current rates, Mountaineer said.
The LDC also proposed actively promoting budget billing plans for customers not already enrolled through bill inserts and informing customers they may adopt the plans at any time. Mountaineer also said it would seek to increase the level of administrative assistance to West Virginia’s Low Income Energy Assistance Program and extend the customer-requested deferred payment arrangement standard of 12 months for the period ending April 2023.
That said, Mountaineer requested that “given the significant increase in gas prices this summer,” the commission allow the LDC to adopt a modification for PGA costs with the goal of sending “the proper price signal to customers and limit large over or under-recovery accumulations and the ensuing rate swings that follow commodity pricing variances.”
Other measures proposed to compensate for high gas prices included allowing West Virginia LDCs to apply interest when in an under-recovery position and pay interest when in an over-recovery position.
The West Virginia PSC Utilities Division has recommended Mountaineer charge $9.099/Mcf, as opposed to $8.850, for residential services beginning next month.
In a similar vein, Denver, PA-based UGI Utilities Inc. said its purchased gas cost rates had increased, and as a result, an average residential customer heating bill would be up by 7.6%.
“Energy prices in general, including natural gas, have continued to rise due to increased global demand among other factors,” said UGI Vice President Chris Brown. “UGI works closely with our suppliers to ensure our customers continue to receive strong value in choosing natural gas and understands the impact that this rate increase will have on our customers. Despite this increase, natural gas remains an economical energy choice backed by local, reliable shale gas supplies.”
The EIA’s 2022 WFO mirrored Brown’s message. Even considering a 51% year/year increase in a 10% colder winter scenario, natural gas would remain the least expensive energy option this winter at $1,096. In the base case, in which temperatures remain relatively stable year/year, the agency estimated natural gas could cost the average household $931 from October-March.
Brown added that Pennsylvania’s natural gas prices, at the time, were comparably lower than in other parts of the country because of Marcellus Shale production.
“Appalachian gas prices have been really low a number of different times over the last decade because producers were growing production faster than pipeline capacity could pace,” Rau said, warning that if capacity does not increase, “producers are going to have to slow their activity, which means they shouldn’t grow production at a much greater pace, and that should mean relatively higher prices in the Appalachia compared with where they were historically. So, it’s not necessarily the prettiest picture for utilities in the area.
“…We’re starting to run up against pipeline takeaway capacity there, and the majority of producers in the Appalachia are publicly-traded and they’re all exhibiting much more financial discipline these days. You’re just not seeing any of them grow annual production by more than 5%, so they’re very much in maintenance mode…The Marcellus and Utica used to be the incremental source of production, but that’s no longer the case. I would argue that that’s the Permian and Haynesville.
“Appalachian production is somewhere between 33 and 34 Bcf/d right now, and it’s really going to have a hard time climbing to more than 35, call it 36 Bcf/d, unless there’s some more major takeaway projects happening. There’s still going to be some local demand increases,” NGI’s Rau said.
UGI customers also could expect to see their rates rise as a result of a decision from the Pennsylvania Public Utilities Commission (PUC) to raise UGI’s base rate revenues.
In January, UGI filed to raise its revenue by $82.7 million, or 7.8%, and to implement a weather normalization adjustment pilot.
In September, the PUC approved a smaller increase in UGI’s revenues of $38 million, effective at the end of this month. A second increase in UGI’s tariff of $11.45 million is expected to go into effect in October 2023.
Under the terms of the settlement, the average bill for a residential customer using 73.1 cf/month of natural gas would increase from a current bill of $92.49/month to $96.93, followed by a jump to $98.21 in 2023.
That two-step process would result in a total increase in the average bill of $5.71/month from 2022-2023, compared to a $9.39/month (9.5%) increase that was included in UGI’s initial request.
UGI is also expected to offer additional annual funding, extended eligibility and increased maximum project size for a Low Income Usage Reduction Program. Eligibility for UGI’s operation share grant program also would be expanded, along with additional funding for winter 2022-2023.
UGI would also offer a pilot program to engage with potential low income customers and simplify the application process for Low Income Home Energy Assistance Program customers seeking to enroll in UGI’s Customers Assistance Program, and actively reach out to customers that have not already been recertified.
© 2022 Natural Gas Intelligence. All rights reserved.
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