Fall has definitely arrived across the Midwest, we’re starting to turn on our furnaces and that means our thoughts are turning to the winter heating season.
Based on market prices, the strong supply of natural gas and the amount of natural gas Alliant Energy already has in storage, we anticipate winter heating costs for the average residential customer this winter heating season will likely be between 5% - 15% higher than last year. That’s because last winter was very warm and customer use of natural gas was low.
It’s important to note, however, that this forecast is based on normal winter weather. As is always the case, weather has the potential to play a big role in what actually ends up happening. Weather can drive natural gas costs and your winter heating costs up or down. We only have to look back one year when the Midwest had one of the mildest winters on record for proof of that. In addition to lower prices and robust storage, the extremely mild winter weather was a big factor in customer’s bills being substantially lower than the previous heating season.
Alliant Energy considers the winter heating season to run from October 1 – March 31.
- Frequently asked questions about natural gas prices
- Take the “10-Degree Challenge”
- Natural gas safety reminders
If you're with the media, review our Natural Gas Prices Media Kit. As the winter heating season progresses, we'll be updating this information regularly.
Frequently asked questions about natural gas prices
How many homes are heated with natural gas in the U.S. and in Alliant Energy's service territory?
Natural gas is America's most popular home-heating fuel. More than 64 million (or more than half of) American homes are heated with natural gas. Alliant Energy serves approximately 413,000 natural gas customers in Iowa, Minnesota and Wisconsin.
How do customers use natural gas?
Energy customers use natural gas in two ways. 1) Customers can have natural gas piped directly into their homes for use in furnaces, water heaters and gas stoves. 2) Indirectly, customers use natural gas when utilities generate electricity with natural gas-fired generating plants such as Alliant Energy's Emery Generating Station near Mason City, Iowa.
What is the outlook for natural gas prices this winter?
At this point in time, we anticipate natural gas costs for the average Alliant Energy residential customer for the 2012-2013 winter heating season (October 1 – March 31) could be as much as 5% - 15% higher than last heating season because last winter was very warm and customer use of natural gas was low. This forecast is based on normal winter weather and it is important to remember that weather always has the potential to play a big role in what actually ends up happening, as it can drive your winter heating costs up or down.
How are customers' natural gas prices calculated?
Prices for natural gas that is used by natural gas customers consist of three main costs:
- Transmission: transporting the natural gas from its origin to a local gas companies such as IPL and WPL. (10 percent)
- Distribution: getting natural gas through the IPL and WPL system to customers. (Residential: 20% to 30% - Large customers: 5% to 15%)
- The cost of the natural gas itself: this is driven by supply-and-demand in the market. (Residential: 60% to 70% - Large customers: 75% to 85%)
The cost of natural gas has become the largest portion of what customers pay for natural gas service. In addition, Alliant Energy customers also pay for natural gas as part of their electricity bill, since Alliant Energy uses natural gas to generate some electricity.
Does Alliant Energy profit from higher natural gas prices?
Alliant Energy does not profit from higher natural gas prices. It is a cost that is directly passed on to customers. When natural gas prices are high, so are the costs paid by customers. Along the same lines, when natural gas prices decrease, the cost to customers goes down.
The nation's more than 64 million natural gas customers have ridden a roller coaster of price swings in the last several years. What's happening?
Natural gas is increasingly popular for use by homeowners, schools, businesses, factories and electric power-generation plants because it is efficient, clean, and reliable. The Department of Energy predicts consumption of natural gas will increase 20% by 2030. As a result of increased demand, the market price of natural gas can be extremely volatile due to the tight balance between natural gas supply and demand.
A number of factors can influence wholesale natural gas prices:
- Disruptions to natural gas production caused by hurricanes.
- Amount of natural gas in storage.
- Mild or colder than normal winters that contribute to reduced or increased consumption.
- Summer use for power generation. Natural gas is increasingly used at newer “peaker” power plants (such as the Emery Generating Station near Mason City, Iowa) that generate extra electricity during periods of peak demand during summer heat waves.
What impact does weather have on natural gas prices?
Weather is often the biggest factor in how much residential customers pay for natural gas during the winter. Natural gas prices remain quite sensitive to weather, for three main reasons:
- Heating demand: The weather is a major factor in how much energy people use to heat their homes. If it's colder, people tend to use more energy. So even if the wholesale price of energy stays the same from one winter to the next, consumers will receive higher bills if they consume more energy than they did the year before.
- Cooling demand: An increasing amount of natural gas is being used to generate electricity. With warmer than normal late springs and early summers, operators of many power plants are prompted to buy larger volumes of natural gas in order to power air conditioning. An increased cooling-related demand pushes wholesale natural gas prices up. Note that many of the newer “peaker” power plants that generate extra electricity during periods of peak demand - such as during summer heat waves -- run on natural gas.
- Natural gas production: Natural gas is a domestic energy source. Almost all (84 percent) of the natural gas consumed in the United States is produced in the United States. About 20 percent of the U.S. natural gas production comes from the Gulf of Mexico, making it a sensitive area during hurricane season. Most of the rest (13 percent) comes from Canada, with 3 percent imported as liquefied natural gas (LNG).
What can be done to alleviate the price fluctuations?
Efforts that can be taken in the short-term include:
- Use energy more efficiently - Before the winter begins, residential consumers can take steps such as replacing older furnaces with more efficient models, insulating or replacing windows, installing programmable thermostats or adding insulation. While efficiency alone can help, it cannot solve the problem on its own. Additional natural gas must be produced to keep up with significant increases in consumer demand. Visit our PowerHouse: Home Comfort Tips site for expert advice
- Expand low-income energy assistance - In these continued tough economic times, Congress should increase funding for the Low-Income Home Energy Assistance Program (LIHEAP) to its authorized spending limit of $5.1 billion. LIHEAP provides dollars to moderate and low income level households to help pay a portion of their winter gas or electric bills.
- Increase natural gas supplies - Even a marginal increase in natural gas supplies could help dampen price increases. In the meantime, policy-makers should take steps to enable production companies to increase production from traditional and non-traditional natural gas supply areas, including the Outer Continental Shelf in the Gulf region.
What steps is Alliant Energy taking to manage natural gas price volatility?
We want what our customers want: an ample supply of natural gas at affordable prices. Consumers love natural gas - but they don't like surprises. So, as a natural gas utility, we take a number of actions to stabilize natural gas prices and help our customers deal with fluctuations in their energy bills:
- Billing plans - Budget Billing is a balanced-billing plan that allows customers to spread their natural gas and electric costs over many months, which makes it easier for people to handle winter heating bills.
- Storage - Alliant Energy purchases natural gas in the late spring through early fall months when it is typically less expensive and stores it underground for use throughout the heating season and on especially cold winter days. By purchasing and storing natural gas we're able to protect against potential run-ups of prices on winters' coldest days.
- Locking-in - Alliant Energy is working hard for our customers by using financial tools to manage natural gas prices. For example, about two-thirds of the natural gas we distribute in an average winter will be at a locked-in price by the end of October - including natural gas in storage. Simply put, by acquiring physically stored natural gas, we can lock-in a price now which will help us avoid buying all of the needed natural gas at spot market prices during the volatile winter season when prices can be significantly higher.
- Contract terms - Just as homeowners shop around for food and household items, natural gas supply managers at Alliant Energy obtain natural gas supplies from a variety of sources and under different contract terms.
Take the “10 Degree Challenge”
Want to lower your energy usage by ten percent? Just turn down your thermostat by 10 degrees for eight hours a day - you'll be saving money while you're working or sleeping. It's really that easy! Here's how to make our “10 Degree Challenge” work for you:
Invest in an ENERGY STAR& rated clock-programmable thermostat.
- Open curtains during the day, and close them at night.
- Do NOT close off vents in unused rooms. You won't save money, and condensation problems may arise.
- Avoid using space heaters (electric, kerosene or propane). They're expensive to operate and quite dangerous.
- To prevent water pipe damage, go no lower than 55 degrees.
Natural gas safety reminders
Trying to cut corners on energy use can sometimes lead to potential safety hazards. To avoid accidents, take a moment to review these safety reminders:
- DO have your natural gas equipment inspected by a service technician. A heating system or appliance that isn't working properly can produce deadly carbon monoxide fumes.
- DO have a carbon monoxide detector in your home, and test it monthly.
- DO have your wood-burning fireplace cleaned and inspected, and follow the operating instructions carefully.
- DON'T lower the water heater temperature to less than 120 degrees. Water temperatures below this point can cause unhealthy bacteria to develop.
- DON'T use portable heaters powered by electricity, propane or kerosene. Not only are they expensive to operate, they're also a big safety hazard.
- DON'T try to use a range or an oven as a supplementary heater, and never use a charcoal or propane grill indoors.