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Marci Jacobs/MEDILL

Natural gas customers like Rosalyn King wonder why their heating bills continue to rise despite the warm winter.

Natural gas rates remain fixed despite warm winter

by Marci Jacobs
Jan 17, 2013

Chicago’s 11th warmest winter on record has natural gas customers wondering why their heating bills do not reflect the relatively balmy temperatures.

“For it to be so warm, my bill seems big,” complains Evanston homeowner Rosalyn King, who has seen her natural gas bill more than double in two months. “If the gas company’s overstocked, shouldn’t they be selling it cheaper?”

For Nicor Gas and Peoples Gas customers, the answer is no. Though the two gas delivery companies purchase a portion of their supplies at spot market prices, they buy mostly in bulk ahead of time and pass that locked-in cost on to customers.

“We have the third largest storage facility in the world,” Nicor President Beth Reese said. “And we use that because the demand for natural gas is very high here and we can’t depend on the spot market every day. So we put it in the ground.”

And while the state’s natural gas storage fields are glutted as a result of this year’s mild winter, cost savings from this increased supply won’t translate to customers until well into the future.

“The really warm winter last year actually kept prices lower for this year,” Reese said. “Temperature drives usage at the end of the day, and ultimately that will have an impact on natural gas prices.”

Customers still question why they aren’t seeing cost savings sooner.

“It seems like supply and demand should work,” downtown resident Lindsay Wood said. “They’re big companies and are benefiting from a big market, so I don’t understand how they can’t offer competitive prices.”

Peoples Gas representative Jennifer Block said the company sets its purchasing policy 19 months ahead of the winter season, drawing from a variety of suppliers to spread risk and protect customers from price fluctuations.

“Our job is to mitigate price volatility for our customers,” Block said.

So while customers may not receive the cheapest current price, they are guaranteed a consistent rate.

“You hedge so you don’t have big swings for the customer,” Block said. “That’s our job.”

Unlike residents downstate, Chicagoans have the option to purchase natural gas from independent suppliers, who often are not bound to long-term contracts and can offer competitive market prices.

“Peoples Gas was advocating long-term rate freezes a while back so I dropped the service,” said Gablor Zsolnay, who rents more than 100 Chicago-area properties and purchases natural gas from Nordic Energy Services LLC. “I went with an independent supplier and their rates were considerably lower than what I would be paying.”

Few Chicagoans, however, realize they have the option to purchase independently.

“I think most people are hesitant to purchase from an independent supplier because they might offer a homeowner a rate that looks delicious this year, but then they’re back at a much higher rate next year,” Zsolnay said.

Unlike the city’s recent municipal aggregation deal, which is expected to save individual customers up to $160 on their electricity bills between now and June 2013, the natural gas market does not afford similar cost benefits to customers purchasing collectively.

For the Chicago region, volatile weather patterns mean natural gas providers will continue to prepare for unexpected temperature changes with surplus gas reserves. Reese and Block say that while it’s been mild, this winter is not over.

And climatologists agree.

“Though this year’s been mild and snowless,” National Weather Center Senior Meteorologist Gino Izzi said, “we’re looking at one of the biggest cold snaps to hit Chicago in two years next week.”

Until then, Illinois’ natural gas fields are on hot idle.