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PECO Braces Customers for Higher Prices this Winter

Citing a tight gas supply that has been exacerbated by hurricane-induced Gulf of Mexico shut-ins, PECO said sharply higher wholesale market prices have led it to impose an "unavoidable" 26% rate increase for its suburban natural gas customers. The utility said the rate hike will take effect Dec. 1.

PECO said the total gas rate for the typical residential heating customer will increase to about $1.65 per hundred cubic feet (ccf). The gas commodity charge comprises more than 80% of the total rate, and it will go from $1.02/ccf of natural gas to $1.37/ccf. The utility noted that its customer service and delivery charges will not be affected. Those components of the bill have not increased since 1988. Under the new rates, an average monthly bill is expected to increase by roughly $50-100 compared to last winter.

PECO said it does not expect its customers to experience any gas supply problems this winter. "On the supply side of the house, I think we were a little more careful and diligent in terms of what was going on and trying to react to the situation as best we could," said Cameron Kline, a PECO spokesman. "The transportation side of the house and our contracts are in good shape. We are fine in terms of having the gas and being able to deliver, unfortunately it will just be at a higher rate this year."

Noting that natural gas prices nationally have been consistently higher than past years, PECO added that the destruction in the Gulf of Mexico from hurricanes Katrina and Rita certainly made matters even worse. PECO said that almost all of the gas supply for the local area comes from interstate pipelines that originate in the Gulf, where roughly 40% of natural gas production remains shut down. However, the utility said its current gas commodity rates do not reflect any increased supply costs since the hurricanes.

"We've worked around the pipeline issues and our supply and deliverability operations are in good shape," Kline said. "Our big concern is helping our customers deal with the change. We are urging our customers to call us even if they 'think' they might have a problem with prices this winter. The situation this year is a little different than last year in that it will affect more than low- and fixed-income customers."

PECO Gas Vice President Reed Horting said the company buys gas in a variety of ways in an attempt to manage volatility in the wholesale gas market. Much of PECO's gas supply is purchased in advance of the winter heating season under fixed terms, generally at least three months before expected delivery. PECO buys little gas on the actual spot market in a normal year, Horting said.

The utility noted that in the past, natural gas was purchased during off-peak months at significantly lower prices, and more recently the increased demand for gas across the U.S. has kept prices higher year-round.

"All gas utilities are dealing with much higher costs than a year ago. Unfortunately, a large increase was unavoidable," Horting said. "It'll be several months before gas production is returned to near normal levels but even then, the country must increase its overall supply to keep pace with the increasing demand." He said PECO expects to spend more than $700 million on natural gas supply in the coming year.

Mary Ludford, PECO vice president, customer financial operations said PECO has been working cooperatively with Gov. Rendell's "Stay Warm Pennsylvania" initiative and the Public Utility Commission's "Prepare Now" campaign. She said that for the first time, Pennsylvania is moving to supplement federal money for the Low Income Home Energy Assistance Program (LIHEAP), which could provide heating assistance grants to more needy households.

"PECO recognizes the impact of increasing prices on all customers, and we urge any customers who need assistance to contact the company," said Ludford. In recent months the company has been promoting weatherization, enrollment in its budget billing plan, and its various customer assistance programs.

As an electric and natural gas utility subsidiary of Exelon Corp., Philadelphia-based PECO serves 1.6 million electric and 470,000 natural gas customers in southeastern Pennsylvania.

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