Elizabethtown institutes new natural gas pricing method

The news Enterprise Online, By FORREST BERKSHIRE

The gray peaks and valleys splashed across Elizabethtown Finance Director Steve Park's computer monitor resemble the silhouette of the Rocky Mountains.

Park glances over at the mountain range about every 15 minutes, but he's not seeing a picturesque landscape. He's watching the price of natural gas.

He points to the highest peak.

"That's the day before the Iraq war," he says, when gas prices skyrocketed.

Then he points to the virtual cliff, and his finger follows the slope down into a deep valley as he tracks the progress of the war, with it reaching the bottom at the cessation of the conflict. His finger finally starts to rise again until it gets to the end of the screen, which tells him the price of gas today.

It will be different tomorrow, and the day after that, until it hits a peak and starts dropping again. Part of Park's job is to figure the gas rates for the city, which involves looking at the history of the market, taking advice from consultants, figuring the cost of upkeep and a little bit of gambling.

On Monday, gas was selling on the market for $5.73 per 1,000 cubic feet.

"We could go out and buy it for $5.73 right now," he said.

That means he could lock in that rate for the rest of the year. If gas rates soar, he might get some credit from customers when the winter months roll around and they're paying less to heat their homes than in surrounding areas.

But if gas prices on the market drop, some of that gas might be used to burn him in effigy as customers blame him for paying too much for heat.

"Inevitably, if we lock some in, (the price of gas) is going to drop," Park said.

The city usually locks into a price for part of its supply.

"We, generally, as a rule, if prices look favorable, try to buy half of our supply," Park said.

The city has yet to see a rate it likes this year. Park said anything between $4 and $4.50 is a good buy, but he's not sure natural gas rates will get that low this year.

Locking in a rate for part of the supply at least cushions the volatility of home heating bills. But even with that cushion, home heating bills in Elizabethtown have fluctuated monthly over the past two years. Each time the rate changes, the City Council must pass an emergency ordinance amending the rates, which is time-consuming and slower than the fluctuation of the spot market prices.

That's why Monday, the city approved a new rate schedule that will allow for more flexibility in setting heating rates.

Customers will now be assessed a base rate of $1.40 per 1,000 cubic feet of natural gas usage. During a cold winter month, a well-insulated, three-bedroom house would typically use about 15,000 cubic feet to heat for a month.

That base rate includes fixed costs, like payroll, transportation costs and maintenance.

Then, a variable rate, which will likely change each month, will be added. That rate depends on a number of factors.

It will be based on the "weight average cost of gas," which depends on the rate the city locks into for part of its supply, averaged with the price the city pays on the spot market, then a 2 percent loss rate for gas that escapes the system through leakage, a 4 percent fuel surcharge and any additional transportation costs.

The city also set a minimum rate of $6 a month.

The new rate system is a radical shift from the current one, which has been in place since the city got into the gas business in 1957.

Elizabethtown Mayor David Willmoth said the steep fluctuations the gas market has seen the last few years made the change necessary.

"That's the world we live in," he said, where world events like war in the Middle East, strikes in Venezuela, unrest in Israel and a bad hurricane season all affect the price of natural gas, which affects home heating bills.

"We don't see it changing any time soon," Willmoth said of the erratic gas prices.

Willmoth encouraged homeowners to set up their payments on even-billing, where the annual cost is spread out evenly instead of paying cheap bills in the summer and high bills in the winter.

Meanwhile, Park is still checking the gas rates, watching for a rate he feels comfortable committing to. But that's not an easy call to make.

"It dropped 60 cents last Thursday," he said. He said he's not sure what tomorrow's rates might do.

Forrest Berkshire can be reached at 769-1200, Ext. 240, or e-mail him at forrest@mail.the-ne.co.