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Where Did These Gas Pains Come From?

By Doug Trapp · January 25th, 2001 · Burning Questions
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  Huge increases in natural gas prices are not profiting Cinergy, the company says.
Jymi Bolden

Huge increases in natural gas prices are not profiting Cinergy, the company says.



What's behind the skyrocketing cost of natural gas bills? Is Cinergy taking advantage of residents? Are energy companies hoarding a huge supply to boost prices and profits? Or is the country running low?

Nope -- it's the gas market going through an unusual swing that should even out several months from now, if there's no more extreme weather.

Utility companies such as Cinergy -- the holding company for four local utilities, including Cincinnati Gas and Electric (CG&E) -- aren't allowed to make or lose money from selling natural gas, according to company spokesman Steve Brash. Cinergy buys gas on the open market and calculates its bills by charging for the estimated future cost of gas. The company adjusts the rates quarterly, fixing miscalculations in later bills.

Cinergy's average winter residential gas bill increased from $154 one year ago to $247 in late 2000.

That mirrors a wholesale gas-price increase from $3.79 per 1,000 cubic feet to $7.69, Brash says.

Cincinnati residents reported monthly bills doubling or tripling to more than $700 at recent public hearings on natural gas prices, called by Cincinnati City Councilwoman Minette Cooper, chair of the finance committee. Several factors occurring at the same time pushed prices so high so quickly:

· Demand for natural gas bottomed out about two years ago as oil prices reached record lows. As a result, natural gas prices decreased to $2.50 to $3 per 1,000 cubic feet, Brash says. Drilling companies responded by putting natural gas exploration on the back burner. In April 1999, there were 371 drills looking for natural gas. Now 854 drills are operating.

· In recent years, more utility companies began meeting peak summer demands for electricity with generators powered by natural gas. This had the benefit of producing less pollution than coal-powered generators. But the use of the gas-powered generators increased the demand for natural gas, keeping the prices from reaching traditional summer lows.

· Last month was Greater Cincinnati's fourth-coldest December on record since the National Weather Service (NWS) began its records in 1835, according to Mike Gallagher, a hydrometeorologist technician in the NWS' Wilmington office.

Shari Weir, director of consumer issues for the watchdog group Ohio Citizen Action, criticizes drilling companies for not recognizing the likelihood of increased future demand.

Even with increased drilling, natural gas prices aren't likely to drop to the rates of two years ago, but they will likely drop by half, according to Jim Todaro, a senior natural gas analyst for the Energy Information Administration, the statistical wing of the U.S. Department of Energy.

In response to recent high prices, Democrats in the Ohio Senate have proposed legislation enabling the governor to suspend the state's energy taxes during energy emergencies -- defined by a 25 percent increase in residential prices in one year. Ohio collects a gross-receipts tax on various energy sources, including $4 to $6 on every $100 of natural gas sold.

The Democrats support suspending the sales tax on natural gas from now until April. The state's budget office isn't releasing how much money that would mean, according to chief economist Samuel Nemer. The former state energy tax, which included electricity, was expected to generate $742 million in the year 2000. That's about one percent of the state's $78 billion budget.

"As a dollar amount, it's significant," Nemer says. "As a percentage of the budget, it's not."

It's not possible to say what effect tax cuts would have on state programs, because proceeds from energy taxes go into the state's general fund, Nemer says.

For persons having difficulty paying their heating bills, Cinergy offers several alternatives to regular monthly billing, such as spreading the cost of utilities over the rest of the year. For details, visit www.cinergy.com or call customer service at 513-421-9500.

 
 
 
 

 

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