Expect Higher Heating Bills

December 15, 2005
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LANSING — Michigan residents can expect to see a sharp increase in their home heating bills this winter due to record natural gas prices, but they’ll still pay less for natural gas than consumers in other parts of the country.

The Public Service Commission of Michigan’s Department of Labor & Economic Growth predicts that monthly heating bills for natural gas customers in Michigan will be an average of 46 percent higher than heating bills last winter. Natural gas prices are expected to average $12.30 per thousand cubic feet (Mcf) during the winter months, compared to $8.42 last year.

The typical residential gas customer can expect to see a 38 percent jump in their annual gas bill from a total of $944 last year to an estimated $1,298 for 2005-2006. Those calculations are based on a 12-month period ending in March each year. 

The Michigan Public Service Commission attributes record natural gas prices this winter to the lingering effects of Hurricane Ivan in 2004 and the impact of hurricanes Katrina and Rita this year, which caused major service disruptions in oil production in the Gulf of Mexico, tightened the gasoline supply and drove up prices. The market was already tight before all the recent hurricane activity due to increased demand for natural gas for air conditioning during the warmer-than-normal summer months.

As of Oct. 6, a total of 3 million barrels of refining capacity remained shut down because of the recent hurricane activity, so the oil supply will stay tight until U.S. production and refining capacity get back to normal, the commission reports in its “Michigan Energy Appraisal” analysis for the 2005-2006 winter season.

The NationalWeatherServiceClimatePredictionCenter’s most recent forecast shows equal chances of both colder and warmer than normal temperatures for Michigan from October 2005 to April 2006. The commission notes that if the weather turns out to be warmer than normal, there will likely be less consumption, so heating bills may not increase as much as projected. On the other hand, if Michigan experiences colder than normal temperatures this winter, the increase in heating bills will likely be more than projected in the analysis.

Assuming “normal” winter temperatures, the state’s natural gas consumers can expect to see their average monthly heating bill increase from about $128 last winter to $187 this winter, the agency estimates.

According to the federal Energy Information Administration, more than 70 percent of households in the Midwest are heated with natural gas — the highest concentration of any region. In Michigan, the 2000 census showed that 78.8 percent of Michigan households heat with natural gas, 9.5 percent with propane, 6.7 percent with electricity, 3.5 percent with heating oil, with remaining households relying on wood and other sources. It appears that Michigan consumers should brace for increases in all energy costs.

Residents who rely on heating oil or propane to heat their homes will feel the pinch of higher heating costs, too, according to the commission. The agency points out that in March of this year, the average residential price of No. 2 home-heating oil was $2 per gallon. As of early October, that average had increased 38 percent to $2.75 a gallon. Approximately 8.1 million of the 107 million households in the United States use heating oil as their main heating fuel. The cost of residential propane, however, has increased at a more modest 7 percent, from $1.68 per gallon (excluding sales tax) in March to $1.80 per gallon in October.

Electricity sales in the state are expected to increase 2.9 percent in 2005 vs. a slight decline in 2004. The commission attributes the sales increase to the warmer than normal weather seen this past summer. A decrease in industrial sales caused by reduced economic activity, however, offsets part of the sales increase, the agency notes. The agency doesn’t foresee any supply shortages or transmission constraints on Michigan utility companies’ ability to meet consumer demands for electricity this winter.

Incidentally, the commission has ordered Michigan utility companies to provide their low-income and senior citizen residential natural gas customers with a “Winter Protection Plan” that gives them shutoff protection from December through March.

On the vehicle fuel front, gasoline prices nationwide are projected to be in the $2.50 to $2.60 range for all of next year.

The agency points out that if diesel fuel prices continue to increase as they have in the last year, the added cost for diesel fuel in Michigan could result in a total cost for the year of about $607 million.

According to the commission, the estimated retail gas prices and home heating bills cited in its report are based on the weighted average prices for all Michigan gas utilities, so actual prices will vary from utility to utility. The agency indicated that the retail increases are nearly all due to increases in wholesale prices being paid by Michigan utilities.    

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