Shale gas is shaving bills

In the raging shale-gas debate, there is much disagreement about the economic benefits of drilling.

An Ohio State University report released this week argues that industry-funded studies hype the number of jobs created in Ohio from drilling the Utica and Marcellus Shale formations. The 27-page study is already providing ammunition to anti-drilling activists, who believe that the environmental risks of shale gas outweigh the economic benefits.

While rival academics can argue about which econometric model is better at predicting the future, a relatively narrow measure of the benefit of shale gas is already affecting our monthly utility bills.

The five big regional utilities that serve Pennsylvania and New Jersey customers have reduced their prices on the gas portion of bills by amounts ranging from 37 percent to 52 percent since Dec. 1, 2008, reflecting the steady fall in market prices that experts attribute to new supplies of shale gas.

For the 500,000 customers of Philadelphia Gas Works, the cost of gas has decreased by more than half since December 2008, from $1.27 per hundred cubic feet (ccf) to 61 cents.

What's that mean to a typical PGW customer who uses 900 ccf of natural gas a year? Annual savings of $594.

That price only reflects the commodity charge in the bill, which utilities change periodically to respond to market fluctuations. Utilities aren't allowed to mark up the price, so it should reflect what they actually pay for the fuel.

The other part of the bill is the delivery charge, or base rate, which covers the costs for customer service, billing, maintenance of the distribution system and profit.

Typically the delivery charge is the smaller part of the bill. But the cost of the natural gas has decreased so much in three years that the commodity now makes up only 40 percent of PGW's total rate, down from 61 percent in 2008.

Including both the gas cost and the delivery charge, PGW now charges 55 cents less per ccf than it charged in 2008. That translates into $495 in annual savings, per household.

Other utilities in the region report similar numbers. A Peco Energy Co. customer is paying about $350 less a year for gas. Public Service Electric & Gas Co. in New Jersey says a winter monthly bill for a typical customer is down 34 percent from 2008.

Though the utilities' gas prices are now at their lowest since 2002, customers in this region could see even more savings in the future as production increases from Pennsylvania's Marcellus Shale wells.

About a third of the price that utilities pay for natural gas goes to pipeline companies that transport the fuel from the Gulf Coast to the Northeast. Most utilities like PGW have purchased long-term capacity on the pipelines to assure they get enough supply to meet their customers' demands.

As more pipelines are built in the region, local production could displace gas coming up from Texas and Louisiana, reducing the transmission costs for utilities in the Philadelphia area. It won't happen immediately, because utilities will have to let their pipeline contracts expire first.

But the wave is already starting. Last week, UGI Central Penn Gas Inc. tied 15,000 customers in northern Pennsylvania directly to Marcellus Shale gas producers, bypassing the big Interstate transmission system. Its customers now pay 54.7 cents per ccf for gas, about 20 percent less than UGI Gas Service customers in other parts of Pennsylvania.

"If your distribution system is in proximity to the wells, there's a really substantial potential savings," said Joseph Swope, a UGI spokesman.

A study this month by market research firm IHS Global Insight projected that natural gas prices will be stable for decades. That's an opportunity for gas utilities to poach customers who use heating oil and propane, whose prices are tied to soaring crude oil costs.

PGW is offering a bonus of $500 for oil customers to switch, and Peco is offering $400. Additional bonuses for installing high-efficiency furnaces also may be available.

The cost to convert is prohibitive for customers who don't live near a gas main. But Peco says that more than 95,000 residential customers live along a gas main and are not using gas for heating now. They may be hearing from the utility soon.