How high can heating bills go? Brace yourself

January 26, 2005

BY SUSAN TOMPORFREE PRESS COLUMNIST

http://www.freep.com/money/business/tompor26e_20050126.htm

"Say, just how high was your gas bill?"

• People are taking a painful hit with their heating bills, thanks to a dramatic run-up in natural-gas prices. And they're grousing about it as much as they used to brag about those dot-com stock picks in the 1990s or those home refinance deals.

• The state's two largest utility companies say the average home gas bill was almost 20 percent higher last month than it was in December 2003. But that's nothing, really. Want to get really depressed? Just dig up your bills from a few years ago.

Higher Bills

• December's heating bill could be 88 percent higher for some Michigan consumers than bills for December 2000.

• The reasons? Like everyone else around the country, we're paying higher natural-gas prices. A few years ago, Michigan consumers got lucky and saw unusually low heating bills, thanks to a three-year price freeze. But that bargain-basement deal ended in April 2001.

Why?• Consumers Energy, a subsidiary of Jackson-based CMS

Energy Corp., and Michigan Consolidated Gas, which is owned by DTE Energy in Detroit, sell more natural gas in the state than any other utilities. Consumers has about 1.6 million natural-gas customers; MichCon has about 1.2 million.

• A Consumers Energy Web site -- www.consumersenergy.com -- noted that wholesale prices for natural gas have nearly doubled from the previous year.

• And lately, we're hearing that below-normal temperatures in the Northeast have forced utilities to draw more heavily than usual on stockpiles of natural gas for heating fuel.

• We're getting charged more, as the utilities pass along their costs for natural gas.

For Landlords• Kathy Pearson, a 41-year-old single mother, says she

just about flipped out when she saw her bill for the two-family flat that she rents out down her street in Grosse Pointe Park. The bill, due Jan. 31, is $957.43.

• She will initially pay $363, as required under her budget plan. But she knows that she'll owe a ton of money when the adjustments are made for customers on the budget plan, which allows them to spread heating costs over the entire year. "The next month I can assume will be equal to that or more," she said.

• And her bill for the previous month would have been for $567, if she weren't on the budget plan. "This is crazy. How do people do it?" Pearson asked.

• She includes heat in the rent she charges because the property has 1 boiler and it would be hard for the renters of each flat to split heating costs otherwise. She's not sure anymore if she can afford to keep the property.

Natural Gas Prices

• Mcf =Thousand cubic feet. 1 Mcf=10.30 therms (Based on the national average gas heat content for gas consumed by other than electric utilities in 2002).

http://www.eia.doe.gov/oil_gas/natural_gas/analysis_publications/natbro/gasprices.htm

The Economics

• How do we model demand?

• What will happen to quantity demanded?

• What are the factors?

Price

Quantity (Mcf)

Total Expenditures

$9.77

88.4

$10.50

?