Heating Bills This Winter to Ease Sharply

Utilities: Lower natural gas prices are reducing costs for Californians, but reliance on imports could be a problem in the long run, studies say.

Source: NANCY BROOKS in LA TIMES

http://www.latimes.com/business/la-000077201sep27.story

September 27 2001

Winter heating bills in California will be substantially smaller than the swollen tabs of last year because of sharply lower natural gas prices and plentiful supplies,
utilities said Wednesday.

But the longer-term picture for consumers is not as rosy, despite the recent decline in wholesale natural gas prices.

Two reports released this week warn that California's heavy reliance on imported natural gas, which fuels most of the state's power plants in addition to fulfilling most
of its heating needs, could be setting the state up for future energy crises. For now, the wholesale price of natural gas is dropping along with most fossil fuels, and
supplies are plentiful. Natural gas futures slumped to a 2 1/2-year low Wednesday after an industry report showed a bigger-than-expected jump in U.S. inventories.

The American Gas Assn. said supplies in storage rose 3.3% last week to 2.848 trillion cubic feet, continuing a steady build made possible by reduced demand from
manufacturers.

In response, natural gas for October delivery fell 9.5 cents, or 4.9%, to $1.83 per million British thermal units on the New York Mercantile Exchange. Prices have
dropped 82% from a Dec. 27 record of $10.10 per million BTU, caused by scant supplies.

Prices in California, which imports 85% of its natural gas from other U.S. states and Canada, peaked much higher in December at about $60 per million BTU.
California wholesale prices now are hovering close to the Nymex price.

California was clobbered harder last winter than the rest of the country for several reasons: colder-than-usual weather, heavy use by in-state power plants and
reduced pipeline capacity caused by a deadly explosion. In addition, state regulators accused a major pipeline operator, the El Paso Natural Gas unit of El Paso
Corp., of manipulating the market; federal regulators have not yet ruled on that case.

"The message this year is much better than it was at this time last year," said Anne Smith, vice president for customer service at Southern California Gas, a subsidiary
of San Diego-based Sempra Energy. Southern California Gas' more than 5 million customers paid record prices last year, as did the customers of Sempra's San
Diego Gas & Electric and PG&E Corp.'s Pacific Gas & Electric.

Unlike with electricity, the price of natural gas is not fixed for residential and small-business customers. The gas utilities pass along the commodity price to customers
with no markup.

Last winter, which runs from November to March in the utility world, the average residential customer of Southern California Gas got a monthly bill of $80. This
winter, the average bill is expected to be about $60, Smith said.

The basic commodity cost for natural gas sold to its residential customers for this October, for example, will be 15.9 cents per therm, compared with 57.04 cents
last October. (A therm is one-tenth the standard wholesale measure of 1 million BTUs, or about 100 cubic feet of gas.)

Transmission costs, which remain fairly constant year to year, average about 40 cents per therm for the company's residential customers. (The average single-family
home uses about 75 therms a month.)

PG&E projects similar cost declines, and both utilities say they have plenty of gas in storage to meet the needs of their core residential and small-business customers.

But problems loom with California's natural gas supply system, according to studies released this week by the California Energy Commission and the California
Public Interest Research Group.

The two studies agree that heavy demand has strained the state's delivery and storage systems, but otherwise they had little in common.

The final draft of the Energy Commission staff report, released Monday, noted that utilities already are moving to expand or build new pipelines, and recommended
that the state encourage the drilling of more natural gas wells and expansion of pipeline systems within California, among other things.

The CalPIRG report, released Wednesday, advocates that the state deny licenses to any new power plants fueled by natural gas and to encourage renewable energy
production through favorable taxation and by requiring that a minimum of 20% of the state's electricity come from wind, solar and geothermal sources by 2010.

"Natural gas is cleaner than other fossil fuels," said CalPIRG's Brad Heavner, the report's author. "But it's not a magic bullet, and by relying on it we are setting
ourselves up."