AUB PREDICTS HIGHER
NATURAL GAS PRICES; WHOLESALE
MARKET STILL VOLATILE

ATHENS, Tenn. - With wholesale prices for natural gas rising steadily, officials at Athens Utilities Board (AUB) caution that retail rates likely will also be forced upwards. This means AUB natural gas customers may see the impact in higher natural gas utility bills this winter.

“We’re still doing all we can to hedge financially and make strategic purchases of gas at optimal times, but when the wholesale market stays on a rising price trend there is only so much we can do to keep the increases from affecting our customers,” said AUB spokesman Wayne Scarbrough.

AUB’s rate structure has two components: a fixed portion that remains unchanged month after month, and a portion called the Purchased Gas Adjustment that varies slightly month to month based on a long-run average of what AUB pays on the wholesale market.

AUB began purchasing gas in April to put into storage for the 2004-2005 heating season. The withdrawal season-when customer demand ramps up due to cold weather-begins in November. During the summer, storage-gas purchases were in the $6.00 per decatherm range, Scarbrough said. “Just four years ago we were making those timed purchases for just over $3.00,” he said. A decatherm represents one million BTUs of heating potential.

“In September we injected into storage 49,232 decatherms at a cost of $4.966 per decatherm. That brings our balance in storage to 143,219 decatherms at an average wholesale cost of $5.46 per decatherm,” he said. “These days, those are pretty good purchases when you consider that October wholesale gas is trading at $5.72, November at $7.10, and December gas is pushing $8.20 per decatherm. That’s the volatility in today's market,” he said.

In terms of current storage versus past years, AUB’s October 2003 peak storage was 219,110 decatherms. Using that as a benchmark, AUB still has approximately 76,000 decatherms to inject for this winter season. “We still have about thirty to thirty-five percent of our storage purchases to make. Without some downward pressure soon on the wholesale market, our customers are likely to see the continuing effects of the rising wholesale prices,” he said.

Last November, AUB residential customers paid an average of about 94 cents per therm. This year November retail rates have been calculated at 99 cents per therm. “That’s about five-percent more per therm for November this year versus last year for our customers,” Scarbrough said.

Like other forms of hydrocarbon-based energy sources, natural gas prices are trending the rise of crude oil, which set records for per-barrel prices in recent weeks. Nationally, the natural gas industry is warning customers to expect to pay anywhere from 10 percent to 30 percent more than last winter. “We’re hoping to stay below that through strategic purchases but there can be no guarantees in a market this volatile,” Scarbrough said.

The Natural Gas Supply Association says that supply and demand during past months has the nation’s storage levels of natural gas at near record high levels. But, the association says, the gas that has been put into storage cost more to produce because mature fields of the commodity are experiencing steeper declines in production. Therefore, the association asserts, when the stored gas begins entering the market in November it will do so at a higher price point.

AUB General Manager Eric Newberry said that it is no surprise when customers are upset by the amount of wintertime utilities bills.

“Most of us who work at AUB are also customers of the natural gas department. We see the increase on our own bills and completely understand why customers feel the way they do. Some see their gas bill and think that AUB is making a large profit,” Newberry said.

“But the fact is, we’re not,” he continued. “Today’s unfortunate reality is that we must purchase from a wholesale market that is higher than normal and substantially higher than last winter. What we have to do now is work with our customers during these hard times to the best of our ability while running the business in the best interest of all ratepayers,” he said.

One thing that everyone agrees on, Scarbrough said, is that the weather plays perhaps the biggest role in customer bills.

“Cold weather will show up in your bill whether you heat with natural gas or electric power. Your heating system is going to work harder to keep your home warm at the level you have set your thermostat,” he said.

AUB energy-saving tips include:

• Keep the cold out. Reducing air leaks can cut as much as 10 percent from an average household's monthly energy bill. Seal around doors and windows-and anywhere else pipes or wires enter your home-with caulk or weather-stripping.
• Clean or replace system filters every month. Use your utility bill is a reminder.
• Setting your thermostat back by 10 degrees for eight hours a day can cut your annual heating bill by as much as 12 percent.
• Keep heating units tuned and in top condition. A properly maintained unit can lower your bill. Have a certified technician check equipment and make necessary adjustments.
• Check ductwork and vents. Seal and insulate ducts. Keep vents clear of obstructions.
• Control household temperature. Keep thermostats on the lowest setting comfortable to you. Each degree you lower the thermostat can cut 2 to 3 percent off your energy bill.
• Add insulation to your attic -- it can pay big dividends. Most homes in the Southeast should have at least an R-30 insulation level. Going from an R-19 level to an R-30 level can save 15 percent in heating costs.
• Install storm windows, or tape plastic sheeting over each window to reduce heat loss.
• Conserve hot water. Water heating typically accounts for 14 percent of your utility bill. Repairing leaky faucets, insulating the water heater tank and hot water pipes, and installing low-flow faucets and shower heads can net significant additional savings. Keep water heater thermostats at 120 degrees.