Sunday, December 3, 2000

State Shaken by Natural Gas Price Explosion Utilities: Residential bills jumped 50% in November, with more hikes expected. Businesses fare even worse.

By NANCY RIVERA BROOKS, Times Staff Writer

California's summertime electricity blues have given way to a winter of energy discontent as the biggest natural gas bills in recent memory begin landing in mailboxes around the state.

Consumers are being hit with increases on their November gas bills of 50% on average, with heftier bills expected for December and January. Businesses have been slammed even harder. It already is worse than predicted; in the last few days the state's three big gas utilities have boosted their estimates of just how bloated average winter natural gas bills will become. And it could get worse still, particularly if the weather turns colder than forecast. Michael and Mary Berbae were stunned when they opened the gas bill for their Dana Point condo last week: It soared by 128% from the month before--and they were out of the country much of the time. "Thank God I know how to make a good martini," quipped Michael Berbae, a floral designer. "You have to do something to keep your sense of humor." Business owners are faced with either absorbing the higher costs or passing them on to consumers through price hikes.

"It has been a horrible energy year," said Jim Stephenson, vice president of finance for Clougherty Packing Co., which produces Dodger Dogs and other Farmer John brand meats at a landmark mural-covered factory in Vernon. "We're trying to hold the line on prices, but it's very difficult" because the company's energy costs have doubled, he said.

Blame it on a big jump in the wholesale price of natural gas, a commodity that was partly deregulated a decade ago without the anguish seen recently in the electricity industry. A similar supply-and-demand crunch, compounded by a deadly pipeline explosion in August, has reached this once-cheap commodity. As a result, natural gas bills are soaring because retail rates are no longer controlled by regulators. Some argue that it shows the free market's failure. Allegations of market abuse are flying. "The rates are incredible. We're seeing a real failure in the deregulation of the gas transmission system," said Michael Shames, executive director of the Utility Consumers' Action Network. The San Diego-based watchdog group has been a vocal critic of electricity deregulation, and with natural gas rates following in the footsteps of last summer's electricity spikes, "I feel like a broken record already," Shames said. Seventy percent of the energy used in the average California home is natural gas, and more than 90% of the homes in the state are heated with natural gas. Commercial and industrial customers use even more natural gas than residential customers. On a typical residential bill, the cost of natural gas itself accounts for about one-third of the total. The rest is composed of charges for long-distance transmission, local distribution and metering, among other things. Southern California Gas, Pacific Gas & Electric and San Diego Gas & Electric don't profit from the higher price of natural gas, they merely bill users for the price they paid. That price has leaped during the last several weeks. On the New York Mercantile Exchange, natural gas for January delivery hit a record $6.73 per million British thermal units on Thursday before settling at $6.589 per million BTU--more than double the price a year ago. But the price that most of California's industrial and commercial users pay--the price for natural gas at the California border--has jumped as much as sixfold in the last year. In the last few days, gas at the California-Arizona border has traded at unprecedented levels, above $20 per million BTU, compared with about $3 per million BTU a year ago.

Some of the price increase was expected because the supply of natural gas has lagged behind the demand, thanks to the booming economy and the heavy use last summer by California power plants, nearly all of which burn natural gas. In addition, an explosion in August along a major New Mexico pipeline supplying California, run by El Paso Natural Gas, killed 12 people and sharply reduced supplies to California for several weeks. There also have been allegations of market abuse. The California Public Utilities Commission has accused El Paso Natural Gas of driving up prices by withholding capacity on the pipeline, the result of a contract awarding a large portion of the pipeline's capacity to an affiliate company, El Paso Merchant Energy. Houston-based El Paso, in filings with the Federal Energy Regulatory Commission, has denied the allegations. Utilities have been warning customers through advertisements and mailings to expect to pay more this winter, promoting level pay plans and weatherization programs to help ease the blow. But even the best estimates by the utilities have fallen short as natural gas costs have continued to surge. Southern California Gas Co., a subsidiary of San Diego-based Sempra Energy, had been telling customers that a typical monthly residential bill would rise to about $70 this winter from about $50 last winter. The utility this week bumped the winter estimate up to about $80 a month. Similarly, SDG&E raised its estimate to the low $70s, and PG&E residential customers are looking at about $77. Bills in the rest of the country are also on the rise, though not as sharply as in California. Still, natural gas residential bills in the Midwest will average $163 a month this winter, up 44% from last winter, according to the U.S. Energy Information Administration. Chula Vista retirees Jim and Beverly Tesh, who endured a summer of shocking electricity bills in the nation's first fully deregulated power market, tried to control their gas bill by shivering, then donning extra sweaters before finally firing up their furnace on Nov. 20. "All of a sudden reality comes along and it spanks you," said Jim Tesh, who estimates that his gas costs have doubled since the beginning of the year. "Our first concern was electricity, and now we find gas is consuming us," said Tesh, 70, who dreams of installing a solar-powered system for all of his household's energy needs. "Right now, it doesn't pencil out, but there is an aspect of being able to thumb your nose at the powers that be that I find very appealing." High gas prices also are helping to keep the price of electricity up in California. Swollen natural gas bills on top of huge electricity tabs are causing a budget crisis among big commercial, industrial and municipal users who, along with the California Energy Commission, did not foresee this latest staggering leap in prices, said Frederick H. Pickel, vice president of Tabors, Caramanis & Associates, an energy consulting firm based in Cambridge, Mass.

"It will be a severe financial challenge for most entities," Pickel said. "At the moment, they are just gasping, but it will show up in prices once they get a chance to re-price their products." Los Angeles County, a big buyer of natural gas for its offices, hospitals and jails, recently increased its natural gas budget by half to cover higher fuel costs.

Lucy's LaundryMarts Inc. has pioneered a superstore kind of coin-operated laundry in the competitive Southern California market, complete with Starbucks, banking services and entertainment among the washers and dryers. But Lucy's has halted its aggressive expansion plans because of the unexpectedly high energy costs, said Robert Pardo, senior vice president of business development for the 27-store Torrance-based chain.

"We were creating jobs, and now we're not going to open any more until we know how this will affect our profit margins," Pardo said. Energy is one of the biggest expenses for coin-operated laundries, where natural gas is used to heat the wash water and dry the clothes. "We're trying to think of ways to handle it," Pardo said. "The most obvious way is to pass it on to customers, but our customers are very price sensitive, and we'd hate to do that."

http://www.latimes.com/news/front/20001203/t000115907.html

-- Martin Thompson (mthom1927@aol.com), December 03, 2000