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Expensive winter looms
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August 25, 2000: 5:38 p.m. ET
Energy and heating costs expected to fire up when cool time comes
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NEW YORK (CNNfn) - It will be a harsh fall and winter when it comes to consumer's utilities bills, according to experts who track the energy industry. High prices for heating products like natural gas and heating oil are more or less unavoidable now, they say.
On top of that, parts of the country are already suffering high summer electric bills. In Southern California, San Diego-based Sempra Energy (SRE: Research, Estimates) customers have seen their bills increase as much as threefold as heat waves grip California. New York City-based Consolidated Edison (ED: Research, Estimates), commonly called ConEd, is predicting a 30 percent increase in its bills, despite much cooler weather.
"Electricity is now trading as a commodity - as soon as there's a shortage, that number goes up," said Daniele Seitz, utilities analyst and a director at investment bank UBS Warburg.
Natural gas supplies gobbled up
Chalk part of the change up to deregulation. Customers have gotten used to very predictable power bills. Now that is changing.
"You almost conceptually expect that gasoline prices will be just about as volatile as petroleum and oil prices. It's hard to do the same with electricity," Seitz said. But consumers will have to get used to it. Seitz even anticipates power companies offering flat-fee monthly power bills, like cable bills.
 Electric companies are gobbling up a lot of the supply of natural gas, because it's easy to ship gas around and gas is an environmentally friendly and relatively cheap way to generate surplus power.
A gas-fired electric plant, which a company can turn on and off in a few hours, is also much easier to "switch on" at times of peak demand. It takes three days for a coal-fired electric plant to hit its stride, and three weeks for a nuclear plant to do so, Seitz said.
As a result, gas companies that used to store up natural gas in the summer and then sell it in winter are seeing their surpluses snapped up even in the off months. Natural-gas inventories are near six-year lows.
"This year the squirrel isn't burying any nuts and we're going into the winter on fumes," Phil Flynn, an energy analyst for Alaron Trading Corp. in Chicago, said. "Unless something dramatic happens, we're looking at a very expensive winter."
Surge in demand for power, raw products
A year ago, natural gas prices ran at $2.18 per million British thermal units, or btus, Seitz pointed out. This July, that cost had more than doubled by this July, to $4.45. A btu is the amount of heat required to increase the temperature of a pound of water by 1 degree Fahrenheit.
No. 6 oil, a type of oil that fuel companies use, has seen almost the same-size increase as natural gas. In July 1999, a barrel of No. 6 cost $18. By this July, companies were paying $30.
A confluence of other factors is prompting higher utility bills, too. Energy markets were jolted this week by a combination of an unexpected drop in U.S. crude-oil stockpiles, coupled with a pipeline explosion in New Mexico and Hurricane Debby in the Gulf of Mexico, that raised fears of another blow to already-low natural gas supplies.
The Organization of the Petroleum Exporting Countries, or OPEC, has also cut production. With inventories of crude oil at 24-year lows, home heating oil prices surged this week to their highest since the Gulf War.
To top it off, consumers are consuming more and more energy. For instance, a personal computer uses the same amount of electricity as a refrigerator, Seitz explained.
"There's been a subtle but sure demand for electricity, due to the strong economy and the electronic equipment you have around yourself," she said. "The demand for power has been much higher than expected."
Demand for power has been growing at about 3 percent-to-3.5 percent, she went on, here analysts expected a 1 percent or 1.5 percent increase.
Good scenarios for winter are few
It's hard to say how much utility bills will go up on average, because conditions are so different across the country. The weather is different. Some utilities have been better at storing natural gas. Some are better at "storing" electricity, which cannot physically be saved, by arranging to buy extra capacity.
But Suzanne deGraff, a natural-gas customer from Rochester, N.Y., said she has been told her bill from Rochester Gas and Electric Co. will jump about $26 a month, to $130.
"I'm not happy," she said. "But, again, they're the only ones in town. What am I going to do?"
Experts say consumers could skate by this winter only if last year's warmest winter on record is followed by one at least as warm.
"If we have a winter that's just normal, we're going to see potentially astronomical natural gas prices, much higher than we see today," said David Chang, senior energy trader for Bank of America in New York. 
-- from staff and wire reports
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