The trend of extraordinarily high prices for heating fuels continues. Click on the charts below to enlarge them. Prices for natural gas usually rise as winter approaches and in wintertime. The price of natural gas at Henry Hub LA, one of the key benchmark markets for natural gas in the United States, rose ominously in the first two quarters of 2008, and is reaching levels this spring and summer not seen since the huge price spikes in the fall and winter of 2005 - 06:Aggravating the situation is the Public Service Commission's policies adopted in recent years which discouraged natural gas companies from purchasing gas more than one year in advance of expected requirements.
Previously, in order to bridge common natural gas price cycles, utilities bought significant portions of gas for their customers several years in advance. Now, to conform with PSC policy, gas utilities buy about one-third of their supply for the next winter beginning in spring, to be put in underground storage caverns, about one-third is bought at futures prices no more than three months ahead, and about one-third is bought in the spot market. As a result, the bulk of gas purchased for next winter is being bought at record high prices.
The Commission's stated goal is a transition to passing through spot market prices to all customers starting with the largest customers first. The goal of the PSC in destabilizing traditional service is to introduce more volatility and less predictability into customer bills, in an effort to encourage them to shop for gas elsewhere, i.e., from ESCOs. ESCOs, however, have not been shown to offer savings over time, and customers who relied on their promises of fixed or lower prices have often been bitterly disappointed. This policy is completely contrary to the policies urged by utility consumer advocates, which urge utility commissions not to raise or destabilize prices to favor new suppliers.
Natural gas futures prices are still rising, and are at historically high levels through the winter of 2011:Home heating oil prices (the blue line on the chart below) continue to rise along with crude oil:
The implications of these trends are very troubling for New York's low and moderate income households, the majority of whom rely on home heating oil and natural gas to meet their winter heating needs. The situation could be worsened, for example, if there is a hot summer, if hurricanes disrupt oil and gas production in the Gulf of Mexico, and if next winter is a cold one. Even if better conditions prevail, and if markets cool somewhat, the situation may still be dire for many households.
Several years ago, when the PSC adopted its policies favoring more volatility in pricing for electricity and natural gas, by limiting forward natural gas purchases to "a year or so" Con Edison pointed out that it had been buying natural gas three years in advance for part of its portfolio. Even though Con Edison predicted a backlash in the event of a hot summer and spiking electricity and natural gas prices, the PSC rejected their rehearing request and the PSC's volatile pricing policy is being gradually implemented. As large electric customers face spiking electricity prices this summer and as natural gas customers see the effects of this year's price increases magnified due to PSC policies next winter, it may become apparent that it is time for another approach more attuned to consumer needs.