Unitil Announces Rate Increase – What Will Natural Gas Cost?

Unitil just announced a rate increase request to the PUC (public utility commission). It’s been mentioned in the media that it’s a 16% increase. That sounds like a lot!

What does it mean; is natural gas still an affordable alternative?

Your natural gas company is a regulated utility, meaning that all increases must be approved by the PUC, whose job is to strike a balance between the needs of the utility to make a profit, and the consumers’ need for reasonably priced fuel. Your natural gas bill is broken down into several parts; the delivery charge and the fuel charge are the big ones, and then there is a monthly “meter charge” and several other small assessments.

Natural gas is sold by the “CCF”, or 100 cubic feet, or by the Therm, both of which are 100,000 BTU’s. The delivery charge is what it costs the utility to install and maintain the underground piping, all of the infrastructure, and make their nickel on the whole deal. Unitil charges more for the first 40 CCF’s (that’s like 56 gallons of oil) and less for any additional natural gas beyond the first 40 CCF’s. The first 40 CCF’s cost $.45 each. Every CCF above 40 costs $.27 per CCF. That charge, the after 40 CCF is what Unitil wants to raise 4.5 cents per CCF. That’s the same as a price increase of about 6 cents per gallon of oil. Put another way, if you’re a typical heating customer, and you’re purchasing about ½ of your natural gas in the “after 40 CCF’s” category, that will add about $25 per year to your natural gas bill.

Unitil has not asked for a rate increase for the last 28 years, so it would seem like, on the face of it, this small increase is justified. Also, it will make it more attractive for Unitil to extend gas lines into new areas, if they can be paid more from each line.
Below is the rate plan from Unitil:

2012 Unitil Rate Plan

Is natural gas from Unitil still a good deal?

It’s hard to pin down exactly what one therm of natural gas costs. The first 40 CCF’s cost more than all those after. Also, all of the gas companies raise their rates in the winter months, so gas used for hot water in the summer months costs less than the gas we use to heat our homes in the winter. The most expensive natural gas (first 40 CCF’s in the peak season) costs $1.54 per therm, or the same as oil at $2.16 per gallon. The least expensive natural gas, off peak season, is closer to $1.00 per therm, or the same as oil at $1.40 per gallon. For the average home, when all of the various costs are averaged in, natural gas will be about $1.40 per therm, or oil at $1.96 per gallon. In other words, at today’s energy costs, natural gas costs about 40% less than oil today.

What does’s the future hold?

Hard to say. The wholesale cost of natural gas has fallen from about $1.40 per therm down to $.40 per therm recently, as new techniques for extraction have pushed supply up. Even if natural gas were to revert to 2006 levels, which would add $1.00 to each Therm, or CCF of natural gas, that would bring the average price of natural gas from $1.40 per therm up to $2.40 per therm. Even at that price, natural gas would cost about what oil costs today. My bet is when that day comes, oil will have moved up considerably.

What’s a person to do?

Counting on an inexpensive fuel to solve your energy problems is not a great idea, as it leaves us vulnerable to future energy spikes.  The best approach is to invest now in energy efficiency, use less of a reasonably priced fuel, and don’t worry so much about the cost of the fuel. Using a high efficiency natural gas boiler will save about 25% compared to a conventional boiler. Insulation can also reduce the amount of energy needed to heat a home by 25-50% as well.  That’s how we take a home using $3600 worth of oil to $800 worth of natural gas. Then, the price of natural gas can double, and you’re looking at $1600 a year for natural gas, which is still reasonable.

Wholesale Cost of Natural Gas

Wholesale cost of Natural Gas MBTU, or Thousand Cubic Feet

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