Freeman Spogli Institute for International Studies Program on Energy and Sustainable Development Stanford University


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September 12, 2005 - In the News

With Hurricane Katrina sending natural gases well beyond historic highs, consumers and energy providers find themselves in unchartered territory. Natural gas bills may jump up to 40 percent in the coming weeks.

Natural gas bills to rise 40 percent in coming weeks

Hurricane Katrina has shut down nearly 20 percent of production

Appeared in San Jose Mercury News, September 11, 2005

By Matthai Chakko Kuruvila

Already hit with surging gasoline prices, Bay Area PG&E customers will see their natural gas bills jump 40 percent in the coming weeks thanks in part to Hurricane Katrina.

That means the average residential customer will pay an extra $43 this January, typically the costliest month, compared with the previous year, PG&E said.

Katrina shut down nearly 20 percent of the nation's natural gas production, shrinking already tight supplies, spiking prices and leaving Californians vulnerable. Natural gas production in the Gulf of Mexico will take months to fully restore, according to federal officials.

PG&E anticipates that Katrina-related natural gas costs will start appearing on customers' bills within weeks. "Prices are going to be very volatile,'' said PG&E spokesman Jason Alderman. "Our natural gas immune system has been compromised, so to speak. When it gets very cold in New England, we're going to see a much higher price spike in California than we might have without Katrina.''

Californians face a double whammy because nearly half the state's power plants are fueled by natural gas. In recent years, the state has preferred to build clean-burning natural gas-fueled power plants to reduce emissions.

Before Katrina hit, PG&E had proposed a 10 percent hike in electricity rates for next year, largely because of already rising natural gas costs.

Mark Hayes, a research fellow at Stanford University's Program on Energy and Sustainable Development, said soaring gasoline prices grab the headlines "because people see the billboards at the Arco station."

"But the volatility and action in natural gas and electricity prices are actually far greater, and really impact people's wallets," he added.

Natural gas prices already have gone up -- though most consumers don't know it because natural gas is billed to homeowners after they've used it. Utilities don't absorb any losses nor do they profit from increased prices.

But the result is that next month PG&E probably will bill customers for the unexpected surge in Katrina-related natural gas costs in September as well as for projected increases in October.

October bills "could have two months worth of Katrina impacts rolled into one,'' said Alderman, who added that natural gas use is low for the month compared with winter.

Said Claudia Chandler, a spokeswoman for the California Energy Commission: "We are concerned that it is going to burden the consumer, who is already burdened with rising gas prices. They're going to be caught unaware.''

Nearly 80 percent of California homes use natural gas for space heating, while a similar percentage have gas water heaters. A majority of the state's residents also use natural gas for stoves, ovens and dryers, according to the California Energy Commission.

California imports 85 percent of its natural gas and is vulnerable to price swings.

"Natural gas is traded on a national market,'' said Sean Gallagher, energy division director for the California Public Utilities Commission. "The utilities here in California don't have any control over the price of gas.''

Those prices have increased considerably in recent years as demand has grown and natural gas production has stagnated.

Since December 1998, the price of natural gas has tripled. Katrina has sent prices well beyond historic highs.

"We're in uncharted territory now,'' said Hayes of Stanford.

Just how high consumers' gas bills will rise won't be clear until the winter. That will partly depend on how fast natural gas operations are restored in the hurricane-devastated Gulf region.

Katrina's natural gas-related impact on electricity rates will be tougher to gauge.

According to the PUC, about 58 percent of the electricity contracts utilities signed at the height of the state's 2000-2001 energy crisis pass increases in natural gas costs to consumers.

PG&E was not able to say what percentage of its electricity contracts contain such a provision.

Anticipated costs for natural gas and electricity rates are likely to continue being re-adjusted over the coming months. The biggest variable may be the weather. If the winter is cold, furnaces will crank up and so will demand and prices.

Gallagher, the PUC energy division director, advised low-income customers to sign up as soon as possible with the PUC for programs offering bill assistance or other services that will keep the power and gas flowing.




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