Sticker Shock

by Leslie Turk

LUS' customers felt the impact of rising natural gas prices ' but not as much as some other utilities' customers.

Skyrocketing natural gas prices in the aftermath of hurricanes Katrina and Rita didn't hit Lafayette Utilities System's customers quite as hard as other places across the state and country, thanks to the local utility company's fuel diversification efforts. Because about 60 percent of LUS' electricity comes from its Cleco-operated coal-fired plant (LUS owns 50 percent of its capacity), its customers got a bit of a break on recent bills. "About 40 percent of our power has been coming from natural gas generated power," says LUS Director Terry Huval. "[So] we have a strong hedge against rising natural gas prices." Huval explains that the fuel cost component of the rate customers were charged was 6.4 cents per kilowatt-hour in October, compared with 5.5 cents in July (before the hurricanes) and 4.53 cents in October 2004. By law, utility companies are allowed to make a fuel adjustment charge and pass the increase onto their customers; the increase in natural gas prices, from about $7.70 per thousand cubic feet before the storm to $12 to $14 in September and October, was drastic enough that LUS and other utilities like Entergy and Cleco tacked on a fuel adjustment cost.

Huval says the bill increases are also attributable to record months of heat in July, August and September ' a problem exacerbated by low levels of rainfall. "Rob Perillo told me those three months in 2005 are the hottest on record ' that means the hottest in 112 years," says Huval.

With natural gas prices falling to about $10 per thousand cubic feet in November, down from a yearly high of $14.68 at one point in October, utility customers should get some relief.

Lower bills should be arriving in LUS customers' mailboxes any day now, Huval says. "With the first two of our four new generating units now in service, we are in a position to reduce our fuel costs to our customers significantly." He adds that the fuel component is dropping from 6.4 cents to 5.4 cents per kilowatt-hour. The new units are more fuel efficient, and new technology allows them to be turned off within minutes when usage is down, so LUS will be able to increase its coal utilization to 70 percent. "What that means is that with these new units, we are now relying on natural gas for only 30 percent of our total generation needs," he says.

LUS' effort follows a national trend by utility companies to wean themselves from natural gas-fired generation.

However, other customers in the state, served by utility systems more dependent on natural gas, were hit much harder in recent months. Consumer outcry led the Louisiana Public Service Commission to order audits of Cleco's and Entergy's gas purchases through October of this year in an effort to determine if they bought gas at the cheapest available rates. "In October 2005, Entergy and Cleco's residential electric charges were about 23 percent and 18 percent higher than LUS' respectively," Huval says.

Manuel Lam, an energy analyst with the Louisiana Department of Natural Resources, says about 37 percent of the Gulf of Mexico's natural gas production is still shut in but should be back on line soon. With natural gas storage climbing and November weather unusually warm, he expects prices for the rest of the year to settle in the $10 to $11 range.

But, says Lam, it's still anybody's guess what kind of weather awaits in the winter months ahead.