Chicago households could pay much more for heat this winter

By Steve Daniels, Crain’s Chicago Business. November 21, 2018

Chicagoans are about to feel in their wallets what natural gas traders have been seeing for the past several weeks—higher prices.

Peoples Gas’ cost of natural gas in December, which it is passing along to ratepayers, is 45.49 cents per therm, 13 percent above the utility’s charge a year ago. The average Chicago household will pay $9.27 more for gas this December than they did last December if they use the same amount. And that doesn’t include the rising charges Peoples is imposing to deliver the fuel.

More alarming, natural gas futures show that the substantially higher prices are continuing through the heating months of January, February and March. If those prices hold, the average Chicago household will pay $351.43, or more than $71 more than last year, for the cost of the natural gas alone this winter if weather conditions mirror last year’s. That’s a 26 percent increase.

Heating bills in Chicago are becoming an issue thanks to record capital spending by Peoples Gas as it attempts to accelerate the replacement of aging gas mains below the city’s streets. Last year, the average city household paid a total of $787.11 to heat their home in the five months from November to March, according to Peoples.

This year is shaping up to be more expensive. The monthly surcharges Peoples is imposing on customers under state law to help finance its pipe-replacement work is in the $7 to $8 range rather than the $5 per month the average household was paying last winter, according to filings with the Illinois Commerce Commission.

But at least as concerning is the cost of the fuel itself. The rapidly rising price the utility is charging to deliver gas has been mitigated somewhat by the historically cheap cost of the commodity. The market this year looks different. Colder-than-normal temperatures in the eastern half of the country during the early part of the heating season, coupled with lower gas-storage levels around the U.S. than in previous years, have led traders to speculate that meeting demand this year will mean higher prices than we’ve seen in awhile.

Prices registered at the Henry Hub pipeline in Louisiana, which are closely correlated to the costs in the Midwest, are around $4.50 per million BTUs for the coming winter, according to the Chicago Mercantile Exchange. Last year, the spot price for those months averaged a little over $3.

Interestingly, the December gas charge at Nicor, the Naperville-based utility serving 2.2 million customers in most of the Chicago suburbs, is well below Peoples’. Nicor’s charge will be 36 cents per therm, according to an ICC filing. That’s 9 percent above Nicor’s 33-cent charge in December 2017 but 21 percent below Peoples’ 45.49-cent charge for the month.

Peoples, a subsidiary of Milwaukee-based WEC Energy Group, says it’s forecasting the average Chicago household will pay $805 this winter, 2.2 percent more than the $787-plus last winter. A Peoples spokeswoman said the company is projecting “normal” winter usage, which would result in 4.4 percent lower consumption of gas.

A winter similar to last year’s, using Peoples’ own forecasts, would result in a five-month heating bill of a little over $842 for the average household. That’s 7 percent more than last year.

“It’s not uncommon for gas prices to fluctuate month-to-month based on changing forecasts,” she said. “Our hedging program and storage services will help mitigate gas price impacts throughout the winter.”

The cold will persist well after December, of course, but the differences in gas cost between Nicor and Peoples, coupled with the substantially higher charge Peoples imposes on Chicagoans for gas delivery, could well exacerbate a widening gap between what city residents and suburbanites pay for heat. Last winter, Chicagoans paid 80 percent more to heat their homes, a far greater difference than the 35-percent cost differential between city and suburb in relatively recent times.

It’s more expensive to maintain and operate a gas utility in an urban environment than in the suburbs. But historically it hasn’t been that much more expensive.

Peoples and Nicor’s gas charge has been similar in recent years. The main reason for the widening heating-bill gulf has been Peoples’ unprecedented capital spending, which state regulators have said they have no power to check despite their own avowed concerns that too many Chicagoans will be unable to afford heat in the near future. Peoples contends doing anything less would constitute a safety hazard given the age of some of the pipes.

It’s early. But it’s starting to look like the higher costs paid by city residents may include both the cost of delivery and the fuel.

Read the full Crain’s story here.