After a lull triggered by the coronavirus pandemic, home energy prices are set to rise this winter in Maine, affecting anyone who cranks up a gas or oil heater or even flicks on a light.
The biggest wildcard in predicting how high prices might go is the weather. Storms and frigid temperatures increase demand, a seemingly distant thought during an October masquerading as summer.
The expected spending increase is reflected in national data released Wednesday by the federal Energy Information Administration in its annual Winter Fuels Outlook. The agency noted that retail energy prices are at or near multi-year highs.
“The high prices follow changes to energy supply and demand patterns in response to the COVID-19 pandemic,” the agency noted. “We expect that households across the United States will spend more on energy this winter compared with the past several winters because of these higher energy prices and because we assume a slightly colder winter than last year in much of the United States.”
The agency projected that residents on average would pay 43 percent more for heating oil and 47 percent more for propane than they did last winter.
Those projections already are being foreshadowed in Maine.
Home heating oil prices fell sharply last year when worldwide demand for petroleum cratered during the lockdown phase of the pandemic. But they’ve rebounded this fall as economies recover, with average statewide prices shooting up from $1.83 a gallon at this time last October to $2.85 now, according to the latest survey by the Maine Governor’s Energy Office.
The change may not have registered yet with many homeowners because of this month’s unseasonably warm weather, according to Al Bugbee, director at Heatable, a discount oil delivery company based in South Berwick. Heatable’s cash price for delivery on Thursday was $2.84.
“It’s definitely slower,” Bugbee said about the pace of orders. “We haven’t seen the nighttime temperature dip into the 30s yet. That’s really the trigger that drives people to order.”
Oil and kerosene use has been falling in Maine for decades, but six out of 10 households still burn fuel oil as their primary heat source, a larger share than in any other state.
Some homes have shifted to propane or natural gas. Average propane prices are up from $2.45 a gallon at this time last fall to $3.07, according to the energy office.
Pipeline natural gas also will be more expensive. Two of the state’s distribution companies, Northern Utilities, which does business as Unitil, and Summit Natural Gas, say an average home customer will see bills rise this heating season by roughly $30 and $23 a month, respectively.
ELECTRICITY RATES AFFECTED
A forecasted surge in wholesale prices for pipeline natural gas this winter is expected to trigger a jump in electricity rates, as well.
Despite the ongoing transition to renewable power, natural gas-fired plants still generate half of the electricity in New England. They also set wholesale prices.
Wholesale power prices were up roughly 100 percent in August compared with a year earlier, according to the region’s grid operator, ISO-New England. And so-called forward prices for wholesale gas to be delivered this January and February are exceptionally high.
The vast majority of Mainers get their home electricity supply via the “standard offer” service and annual bids overseen by the Maine Public Utilities Commission. Supply makes up roughly 40 percent of a total residential bill from Central Maine Power, which distributes electricity but doesn’t generate it.
Supply rates have been falling the past two years. The standard offer supply prices for homes and small business fell by 12 percent last year compared with 2019 rates. But the trend is now expected to reverse. The exact impact won’t be known until the PUC settles contracts with electricity generators for 2022 rates that take effect in January.
The PUC declined to discuss the outlook and market conditions.
“While we can’t comment on an open RFP (request for proposals) or market trends in general, the commission will work to procure the best rates possible through our comprehensive RFP process,” said Susan Faloon, the agency’s spokeswoman.
But the trend is troubling for the head of the Office of Public Advocate, which represents Maine utility consumers.
“I don’t have a precise handle on what the projections are and what the impact will be on electric and gas rates,” said Drew Landry, the state’s acting public advocate. “But there does appear to be a substantial increase in the cost of gas, and that raises concerns about how customers on fixed incomes or with other challenges will be able to absorb those.”
Going into the winter, cordwood remains the most economical way to stay warm, according to energy office calculations designed to make general comparisons. Natural gas has been in second place, depending on which company distributes it, but that will change this winter with rising wholesale prices. Wood pellets are third-cheapest.
Highly efficient electric heat pumps are on par with wood pellets for cost-effectiveness at current electric rates. They’re being heavily promoted by the state as a way to phase out petroleum. Heat pumps are followed by heating oil, kerosene, propane and – always the most costly – old-school electric resistance heaters.
PRICES A GLOBAL CONCERN
Energy prices can be volatile, and the reasons behind the current rise are complicated and global.
For petroleum, much of it is related to renewed travel and demand for goods following the lockdown phase of the pandemic. For natural gas, the fuel’s growing use as a clean alternative to coal is causing supply pinches in Europe and Asia. Prices there have been surging to record levels amid dire predictions of people being cold in their homes this winter, depending on the severity.
The supply situation appears to be improving as of late in the United States, with more gas being put into storage. But last summer’s commodity price rise led Maine gas distribution companies, which are regulated by the PUC, to ask for rate adjustments.
Distribution companies such as Unitil and Summit don’t profit from higher wholesale gas prices. They pass along the costs through a review process tied to what’s known as the cost-of-gas factor.
For Unitil’s 24,300 residential heating customers, each using an average of 610 therms during the winter period, a typical bill would be roughly $1,026. That’s an increase of nearly 22 percent over the most recent heating season, or about $183 more, according to revised figures sent to the PUC on Oct. 5.
Summit is asking the PUC for a gas-cost adjustment that would increase its rate to roughly 81 cents per therm, nearly what it was in 2018. It was 52 cents last year. A home customer would pay an additional $23 a month compared with last winter, for a total of $1,790 annually starting this month.
Summit is encouraging customers to take conservation measures to reduce consumption, such as closing dampers on unused fireplaces.
“We also encourage our customers to reach out if they have any issues paying their bills, so we can set up a payment plan and explore payment assistance options,” said Lizzy Reinholt, Summit vice president for sustainability and corporate affairs.
Regarding electric rates, energy experts have been watching the Day-Ahead Energy Market, which is how generators bid to supply power for the next day based on weather, demand and other factors. The August average had risen to $49.47 per megawatt-hour, 108 percent over a year ago. This price in part reflects the expected future cost of natural gas, but it is volatile.
“To what degree the forward market signals translate into true winter costs is largely dependent on the weather and timing of cold and storms impacting the region,” said Dan Dolan, president of New England Power Generators.
But Landry, the acting public advocate, already sees an ominous indicator. His office has been getting calls from upset consumers who signed up with competitive energy providers and aren’t on the standard offer.
“Competitive providers appear to be offering new contracts at 50 to 100 percent more than the current standard offer,” Landry said. “We’ve even heard of one renewal last week coming in at 18 cents per kWh.”
The current standard offer rate for home customers in CMP’s service area is 6.5 cents.
The petroleum trends roiling home energy markets don’t stop inside, of course. They extend to the driveway.
Average gasoline prices in Maine hit $3.20 a gallon this week, according to national price tracker GasBuddy, a 9.5 cent weekly rise and part of a trend that has pushed national prices to their highest levels since 2014.
“Last week saw oil prices advance to their highest in seven years, with a barrel of West Texas Intermediate crude oil surpassing the critical $80-per-barrel level.” said Patrick De Haan, head of petroleum analysis for GasBuddy. “The problems continue to relate to a surge in demand as the global economy recovers, combined with deep cuts to production from early in the pandemic. If Americans can’t slow their appetite for fuels, we’ve got no place for prices to go but up.”
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