The cost of home heating this winter will increase significantly for many

By KATHY DAY

Herald Writer

Odds are that tempers will rise when temperatures drop and area residents open their heating bills this winter.

That’s because costs for propane, heating oil and natural gas are going the way gas at the pump has been going for the past year — nowhere but up, say industry officials.

The good news is that the Snohomish County PUD’s electricity prices will remain essentially the same as last year. But the increases for other heating fuels are running in the 16 to 30 percent range regardless of the type.

For example, homeowners who paid about $900 for their propane in 1999 are likely to spend about $1,400 this year, one local dealer said.

The reasons vary, but basically it’s all in the economics of supply and demand. Usage is rising and supply is dwindling, evidenced by President Clinton’s move last week to supplement the supply by pulling heating oil for the Northeast from the nation’s reserves.

At the same time, clean air demands and other environmental regulations such as salmon restoration are putting a growing reliance on natural gas for generation of electricity. Fewer dams are being built and there’s talk about taking some down; nuclear plants are no longer being built and technology firms are consuming more energy, all of which add to increased demand and pressure on prices.

In August, propane prices jumped 22.5 percent and they’re still climbing, said Al Leavitt of EnviroPropane in Arlington. "We’ve never seen prices this high at this time of year," he said, adding, "It will get worse before it gets better."

Propane, a petroleum byproduct that for years has been cheaper than electricity, is now higher for the first time, he said. He estimated that the 12,000 to 15,000 county residences heated with propane use about 10 million gallons a year.

The reality, Leavitt said, is that crude oil is in short supply, so if winter arrives early in the Midwest and East, prices could continue to rise. "But if winter is slow developing, they could go down in December and January," he said.

Greg Bowlin, transportation supervisor with Permagas in Lake Stevens, said another part of the rising cost is that during the winter, petroleum refineries back off gasoline production, and thus its propane byproduct. "That drives the costs," he said.

Permagas, he added, is trying to hold the line for consumers at a 30 percent increase "to see if it is a one-winter thing. We just can’t go to the public and say we’ll double your prices."

Thus the effects are felt even more by the middle man than by the consumer, although in the long run, the increases will be passed on if the price spike isn’t a temporary phase, Bowlin said.

While prices for propane can vary between customers, based on usage and the type of service or contract, the range Leavitt’s customers are paying today is about $1.35 to $1.45 a gallon. That compares to $1.05 to $1.10 a gallon year ago.

While heating oil prices are even higher at $1.69 to $1.89 a gallon and have jumped even more — from between 98 cents to $1.18 per gallon — the comparison isn’t apples to apples, according to information provided on American Distributing Heating Fuels’ Web site. Heating oil produces more BTUs — a unit of heating value — than other sources and is actually more efficient than natural gas, propane or electricity, the site states.

Suppliers of heating oil, like propane dealers, must deal with costs being pushed by crude oil availability and cutbacks in production.

"It’s no secret," said Steve Miller, owner of the Everett American Distributing branch, which sells both heating oil and propane. "OPEC is hoarding oil … and driving the costs."

About two-thirds of Miller’s customers use heating oil and the rest, propane, he said.

Pricing, he said, is a "major game that makes distributors like puppets at the end of a string," Miller said.

Competition from East Coast distributors, who sell more than all of Washington state’s dealers combined, adds to the woes since local dealers can’t compete for quantity discounts, Miller added.

Customers who use natural gas also have been seeing higher prices since August when the Washington Transportation and Utilities Commission approved a 27.5 percent price hike for Puget Sound Energy. That amounts to about $13.23 a month more for the average customer, according to the Washington Utilities and Transportation Commission. Commercial customers are paying 32 percent more than a year ago.

Bill Donahue, a senior rate analyst with Puget Sound Energy, explained that the investor-owned utility’s rate hike was approved based on a purchased gas adjustment clause in its contract that allows the company to pass along increases — and decreases — if they occur. The utility forecasts prices annually, but when there are major changes because of changes in market price, officials must seek adjustments "to keep us whole," he added.

On Nov. 1, 1999, Puget Sound customers saw a 15 percent increase in their rates and on Aug. 1 those prices went up again, Donahue said.

"Both changes reflect an underlying change in the gas supply market," he explained. "It’s like any other commodity."

So far, the spiral hasn’t hit Snohomish County PUD customers, whose rates remain at the 5.2 cents per kilowatt hour they paid a year ago. Spokesman Neil Neroutsos estimated that the district’s "average" customer whose home is heated with electricity uses about 18,000 kwh for a yearly bill of about $936.

The district’s "official" position is that customers’ bills will stay constant year, but board members and staff have said they are keeping a close watch on prices they must pay to acquire electricity for customers.

"If we continue to see high prices in the market, that will put pressure on us," Neroutsos said.