By Misti Strader
Tribune-Courier News Editor
mstrader@tribunecourier.com

MARSHALL COUNTY – Natural gas prices are expected to reach highs not seen since 2005 in the wake of Hurricane Katrina, advises Kentucky’s Public Service Commission.

PSC Chairman David Armstrong said, “Although prices have fallen in recent weeks, it still seems likely that heating costs this winter will be higher than in the last two years.”

Local gas companies say they have been bracing for the increases since fuel prices sky-rocketed earlier this year.

According to the PSC, natural gas prices, generally driven by supply and demand, have been moving higher since 2003, with most of the increase due to rising demand that has strained the ability of producers to keep pace.

However, they say, the steep increases seen this summer do not appear to be related to market imbalances.

Rather, according to analysts, they are a result of the flow of investment dollars into commodity markets, which has driven up prices.

By federal law, natural gas prices are not regulated at the wholesale level and fluctuate with market conditions. Under Kentucky law, gas companies are entitled to recover the wholesale cost of the gas delivered to customers, including the fees they pay to interstate pipelines to transport the gas to their retail distribution systems.

However, the PSC plays watchdog over those gas companies as they are not allowed to earn a profit on gas costs, only reimbursement. Adjustments are reviewed by the PSC to ensure compliance.

According to PSC reports, the most recent wholesale gas cost adjustments filed by Kentucky’s five major natural gas distribution companies reflect the situation in the national natural gas market. On average, they are 65 percent higher than they were one year ago.

This year’s increase is likely to hit home with locals as approximately 44 percent of Kentuckians heat their homes with natural gas. Those who heat with propane and fuel oil are also expected to pay substantially more than a year ago.

The cost of heating with electricity is also expected to rise due to higher prices for coal, which is used to generate nearly all of Kentucky’s electric power.

Ron Mays, vice-president of West Kentucky Rural Electric, said he anticipates electric rates to increase this year for local customers.

“Any increase to our customers will be a direct result of a TVA rate increase to us,” he said.

Mays said he felt the increases would be more than just “slight,” and said he expected a statement to be released from TVA on anticipated price increases within the week.

TVA’s stated policy on fuel-cost adjustments is: “When prices for fuels commonly used to make electricity increase, TVA uses the Fuel Cost Adjustment mechanism to recover higher fuel and purchased power costs. A variety of factors affect these costs, including weather and global supply and demand issues.”

The PSC reported three of the five companies - Atmos Energy, Delta Natural Gas Co. Inc., and Louisville Gas and Electric Co. - filed their highest gas cost adjustments ever last month, two of which were at near-record levels.

The PSC also noted all of the companies will be adjusting their wholesale costs again prior to the start of the winter heating season. Those adjustments will take into account further changes in wholesale prices for natural gas.

“While the high prices now are certainly cause for concern, they are coming at a time when most consumers are using relatively little natural gas,” Armstrong said. “If prices continue their current trend, the situation could improve before the start of winter.”

The PSC reports about half of the natural gas used for winter heating is put into storage in the summer.

In the past, that gas was less expensive and helped offset higher gas prices in the winter. But due to the increasing national demand for gas and for electric generation, especially in the summer, that is no longer the case.

Falling prices at the pump won’t help much either, because even though prices have fallen sharply in recent weeks, a portion of the gas put into storage this summer was bought prior to the decline. The cost of that gas will be reflected in heating bills this winter.

The overall cost of natural gas this winter will be determined by the cost of gas withdrawn from storage, combined with the cost of gas purchased by distribution companies during the heating season.

It is uncertain at this time exactly how much of an increase local gas and electric customers will be seeing this winter, but experts are predicting the energy increases will be reflected across the board.