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Heating bills may jump 26 percent after two winters of record-low costs

After two years of record-low heating bills, Western New Yorkers may have to pay more to stay warm this winter.

If temperatures return to more normal levels after two winters of abnormal warmth, the average heating bill across the Buffalo Niagara region is expected to jump by 26.5 percent – or about $123 – from last year's unusually affordable cost, according to National Fuel Gas Co.

The culprits: Higher natural gas prices, which have increased by about 10 percent over the past year, and the expectation that the string of good luck that has brought unusually mild weather to Western New York during four of the past six winters will come to an end and return to more normal patterns.

"It's good news/bad news," said Karen L. Merkel, a spokeswoman for the Amherst-based energy company.

The bad news is if National Fuel's forecast is accurate, the utility's average customer can expect to pay $588 to heat their homes during the five-month winter heating season that runs from the beginning of November to the end of March.

That's up from $464 last winter and a record low of $381 during the winter of 2015-16, when consumers benefited from two types of good fortune: Warm weather that meant furnaces didn't need to run as often and low natural gas prices that were pushed even lower by weak demand and plentiful supplies of shale gas regions in nearby Pennsylvania.

The good news is the expected increase will still leave the average consumer's heating bill at relatively normal levels. National Fuel's forecast calls for this winter's heating bills to be $7 more than the average heating bill over the past six winters.

Whether National Fuel's forecast pans out will depend largely on how warm – or how cold – this winter turns out to be. It usually misses the mark because changes in the weather cause fluctuations in natural gas prices.

Warm weather – like the region experienced during the past two winters when temperatures were more than 10 percent higher than normal – will push bills down by lowering natural gas consumption and putting downward pressure on gas prices.

Cold weather – like the region experienced during the winters of 2013-14 and 2014-15 – will have the opposite effect, driving overall heating costs higher because furnaces have to run more and the increased demand pushes up natural gas prices.

"Weather is always the unpredictable factor," Merkel said. "A lot of what we've seen is because of the unseasonable warmth over the last two winters."

But even if temperatures turn colder, the ample supplies of natural gas from the shale gas region in Pennsylvania, where state regulators allow drillers to use the controversial hydrofracking methods that are barred in New York, should keep natural gas prices from returning to the levels they were at a decade ago, when winter heating bills routinely topped $1,000.

"Natural gas has been a good value, with our location here in Western New York providing for some of the lowest prices in the U.S.," said Gary Marchiori, the president of EnergyMark, a Williamsville energy services company.

Marchiori thinks heating bills may rise less rapidly than National Fuel predicts, estimating that costs could increase by 15 percent this winter compared with last year's unusually affordable levels.

One reason for that is that natural gas from nearby Pennsylvania sells at a discount from the prices on the national commodities markets. Pennsylvania shale gas currently sells for around $2.70 per 1,000 cubic feet, which is about 15 percent less than the price on the New York Mercantile Exchange, Merkel said.

That’s good for consumers in two ways. Not only is the commodity price of nearby natural gas supplies lower, but the cost of transporting that gas to Western New York also is less because it is nearby in Pennsylvania.

Commodity prices in the Marcellus Shale region are depressed because there is not enough pipeline capacity to ship the vast amounts of gas the area is producing to markets in the Northeast and elsewhere that need it, creating a severe oversupply.

State regulators have blocked two major pipeline expansion projects are in the works, including one by National Fuel that would have run through Western New York and transport gas from Pennsylvania to markets in Canada.

Federal regulators last month overturned the denial by the state Department of Environmental Conservation of a water permit needed for building the Millennium Pipeline in the state. National Fuel also has filed an appeal to those same federal regulators, asking the Federal Energy Regulatory Commission to overturn the DEC's denial of a water certificate for its Northern Access project.

"Gas prices have decreased dramatically since the shale gas play started seven or eight years ago," Merkel said. "Our customers are definitely at an advantage because of our access to low-cost gas carried in the pipelines."

About half of the natural gas that National Fuel’s customers will use this winter was purchased during the summer - a practice that reduces potential price spikes should gas costs soar, while also limiting the potential savings if they plunge, Merkel said. The utility also buys some gas through advance-purchase contracts or on the spot market, Merkel said.

Heading into the heating season, natural gas stockpiles nationally are 1 percent above their five-year average, creating more of a cushion in case a cold spurt drives up consumption, according to the Energy Information Administration.

If the forecasts hold true, it would be the ninth straight winter of relatively low heating bills in Buffalo Niagara. Heating costs during each of the last six winters have averaged $581 – 45 percent lower than the $1,065 they averaged from 2005 to 2008.

Still, heating costs can be a burden for low-income consumers, who often use more gas because their homes and apartments tend to be older, draftier and less insulated than residences of wealthier consumers.

Low-income consumers in New York spend between 20 and 40 percent of their income on energy costs, according to the state Public Service Commission. Nearly 1 in 6 National Fuel customers is considered to be low-income.

National Fuel, like all utilities in the state, does not make a profit on the natural gas that it sells its customers. Its profits come through the delivery charges paid by consumers that are set through negotiations with state utility regulators.

About 89 percent of the households in Erie County heat with natural gas, the U.S. Census Bureau says. Another 6 percent heat with electricity, and less than 2 percent apiece use fuel oil or propane.

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