Prepared Witness Testimony

The House Committee on Energy and Commerce

Natural Gas Supply and Demand Issues

Full Committee on Energy and Commerce
June 10, 2003
10:00 AM
2123 Rayburn House Office Building 

Mr. Donald L. Mason
Commissioner
Public Utilities Commission
80 East Broad Street
Columbus, OH, 43215

Mr. Chairman, members of the committee, my name is Don Mason and I am a Commissioner of the Public Utilities Commission of Ohio. I would like to thank you for the opportunity to discuss the impact of potential natural gas supply shortages on consumers. In Ohio, the average residential natural gas consumption ranges from 100 mcf annually in the southern part of the state to about 110 mcf in northern Ohio. It is important to note that this is 5% lower than historic demand. Residential consumers have already responded to high natural gas prices by decreasing consumption over the last several years. Residential consumers have modernized appliances and set back their thermostats. Therefore, my message to homeowners and renters is the conservation of energy can only have a marginal impact on their natural gas bills.

Based on discussions with Ohio companies, I am anticipating that we will see a minimum of $2.50 - $3.00 per mcf increase to residential natural gas customers, this winter heating season. In real terms, the home heating cost this winter will increase by at least $220 per household. That might not sound significant, but during the winter season of 2000-2001, one gas company in Ohio saw residential nonpayment jump from $10 million a year to $26 million. As a result, 2002 saw an increase of 50% of residential customers who were disconnected from gas service. It is hard to measure the suffering that takes place to a family that has high heating bills; only to have their hot water and heating disconnected, which could even occur during the summer months. Additionally, those families that do manage to make payments, substitute those payments for other important items, or delay paying other bills. Either outcome affects consumer credit and family stability.

The natural gas which is being stored this spring and summer will provide the base load, or about 50% of Ohio's residential consumers' winter needs. I have concerns for the upcoming winter heating season. Natural gas going into storage is about $3.00 higher per mcf than last year. However, comparatively speaking, that is the good news. There is no good way of predicting what the cost associated with the spot market will be if the winter is a long, cold one without relief. This past year, the nation was fortunate to have about 3.2 tcf of gas in storage, compared to current storage level of 1.2 tcf. Typically, at this time we should have at least 1.7 tcf of gas in storage, and as you can see we are considerably behind. If the summer is hot, and natural gas-fired electricity generation creates a competitive demand for gas, then the price of stored gas will be even higher than originally anticipated. It is possible that we can see spot market gas at $10.00 to $12.00 per mcf.

Government officials can have the greatest impact on this impending problem by first increasing public awareness that their gas prices are going to be higher this coming heating season. We can do this on our own as well as with the help of the local distribution companies, in the form of bill inserts for example. The best form of demand management or conservation is price signal.

Unfortunately, gas is used BEFORE the consumer sees a bill. People need to know the price is going up BEFORE they use the gas, this will help them prepare for the "sticker shock," thereby lessening the "shock." It will also help them make their own choices about how best to manage their energy needs.

After examining the natural gas supply and demand curves, and recognizing that the prediction for high gas prices is a likely scenario, I would like to leave you with the following recommendations. Federal and state government leaders need to encourage energy conservation and increase the supply of natural gas.

We need to increase attention to the demand side by: 

• Encouraging local natural gas companies and regulatory authorities to promote budget billing and payments for residential consumers; 

• Utilize regulatory authorities to encourage local gas companies to utilize financial and physical hedges to reduce the impacts of high gas prices, especially spot market gas purchases; 

• Increasing public awareness on the effectiveness of home weatherization; and, 

• Encouraging residential consumers to examine the temperature settings and the age of their existing appliances.

We need to increase attention to the supply side by: 

• Where appropriate, opening public lands and off shore locations to exploration activity; 

• Encouraging technologies that promote a multitude of energy options for electricity generation so that residential heating consumption and gas storage do not compete against electricity generation;

• Streamlining gas pipeline siting and construction so that the Midwest and Northeast markets have more options available to transport natural gas and product; and,

• Improving the tax and fiscal policies of our country to encourage the investment of capital in energy exploration and pipeline transportation.

I would like to thank the Chairman and the Members of the Committee for allowing me to present my views today. I would be happy to address any questions you may have at the appropriate time.

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