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Forecast for Southland's Winter: Higher Gas Bills

Energy: They'll run 40% more than in '99. It could be years before prices ease.


The onset of the first cold weather of the year serves as a grim reminder to Orange County residents and other Southern Californians that energy inflation is about to hit them in the form of higher bills for natural gas, the heating fuel of choice for 90% of the region's residents.

This winter, monthly gas bills will average $70, a 40% increase over last year, reflecting the doubling of natural-gas prices on commodity exchanges in the last 12 months. The brunt of the increases won't hit until December, but bills now arriving in the mail for October are showing an average $10 increase, Southern California Gas Co. said Monday.

The higher natural-gas prices will be passed directly through to consumers this winter, unlike with this year's other example of energy inflation: electricity. Despite the summer spike in wholesale generation costs, retail electricity rates are frozen in the coverage areas of the state's three investor-owned utilities; prices have generally remained stable in areas served by municipal utilities.

Consumers had better become accustomed to higher gas prices because forecasters are warning that they could be with us for some time--that the market will take three to five years to regain its former equilibrium. Sempra Energy, the San Diego-based corporate parent of Southern California Gas, and Pacific Gas & Electric in Central and Northern California are running a slew of public-service ads to prepare ratepayers for sticker shock.

Pessimism continues to prevail in the industry despite last week's 8% drop in gas futures after an American Gas Assn. report said mild weather had led to 60% more gas being put into storage so far this month than the five-year average. High storage inventories are considered a harbinger of lower prices.

"We are in a period of significant inflation in the price of energy," said S. David Freeman, general manager of the Los Angeles Department of Water and Power. "The only good thing about it is it makes investments in energy efficiency dramatically more cost-effective."

Prices are up quite simply because the booming economy has forced demand for natural gas--among businesses, consumers and the growing crop of natural-gas-fired electric power plants--far ahead of producers' ability to provide it. Consumption is growing at an annual pace of 3% to 6%, whereas supplies are flat, even declining.

Although gas demand has been creeping up for the last several years, its full effect was blunted by mild winters since 1997. But analysts expect a harsher winter this year. And that, combined with unusually high summer demand that reduced seasonal storage levels, has created the current price pressures.

"It's going to be tight," said Bill Wood, chief natural-gas forecaster with the California Energy Commission in Sacramento. "Bills coming for October could hold some surprises. As consumers, we need to do things to reduce demand: turning down thermostats, reducing the temperature of hot-water heaters."

Wood and others warned that prices could rise dramatically if a natural disaster or an unforeseen supply interruption should occur.

On top of already high prices for gasoline and electricity, the prospect for higher home heating bills could create a painful "three-ring circus" for consumers this winter, to use Freeman's phrase.

"Whoever is elected president, Gore or Bush, is going to have a big energy issue on his hands," he said.

The 1.2 million customers of San Diego Gas & Electric, another Sempra Energy unit, will see their average utility bills rise to $128 next month, of which $56 will be for gas. In October 1999, the average SDG&E bill was $94.65, of which $39 was gas, a spokesman said Monday. The 5 million customers of Southern California Gas will see an average $20 tacked on the typical $50 bill from last December through February.

The demand growth for gas is creating a classic market response to scarcity: higher prices. But the classic industry reaction--the development of new supplies through more drilling and additional pipelines--is taking longer to come about because of the reduction in personnel and drilling rigs at producers' disposal.

Since mid-1999, gas producers have doubled the number of onshore and deep-water rigs exploring for gas to more than 1,000 in the U.S. But it will be spring before significant new supplies come online--and even then supply will still lag demand, Wood of the Energy Commission said.

"It could take one, two or three years for production to catch up to demand," he said. "Prices will stay high this year, drop off a little bit until 2003, but take until then before supply catches up with the long-term trend."

Ed Morse, executive advisor at Hess Energy Trading in New York, is one of many analysts who are even more pessimistic.

"Major pipelines from Alaska and northern Canada will help, but those are three to five years away, assuming the investors decide to go ahead," he said.

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