Cold Comfort for Natural Gas Users

For some consumers, skyrocketing prices mean balanced budget home-heating plans are anything but

By Sonja Ryst

With no relief on your soaring home-heating bill in sight, you might opt into a so-called "balanced payment" plan designed to ease the pain in your pocketbook this winter. But don't bank on a cure.

Saul Mariases, a retiree in Hanover Park, Ill., enrolled years ago in a "budget payment" plan with Nicor Gas (GAS ) that spread out his costs evenly. The utility would calculate regular monthly payments by estimating his gas use each year, then dividing that total by twelve.


  Every four months, Nicor reevaluated its estimation to make sure Mariases' bill remained on track. He says the plan made it easier to predict and budget his expenses throughout the year.

But these days Mariases' bills are shocking him anyway. During the first four months of 2005, Mariases paid $58 per month for his energy. Then he paid $80 per month until August. Now he just received a notice that says he'll owe $179 per month from September until December.

"I understand that in winter it's going to be higher, but this is robbery," Mariases says. Mariases has just opted out of his budget-payment plan so he can more than $200 worth of credit accumulated in previous months against his upcoming bills.


  Mariases isn't alone. With the price of heating fuels, particularly natural gas, skyrocketing, utilities and consumers alike are finding it hard to predict prices. After Hurricane Katrina flooded New Orleans in late August and crimped production in the Gulf of Mexico, the American Gas Assn., citing Energy Information Administration statistics, said that price of heating a home by natural gas could increase nationally by as much as 47% this winter, and and may be even higher in the Midwest and other areas.

Wholesale natural gas prices have soared, to $12.66 per million British thermal units (BTUs) on Sept. 19, vs. $8.21 on Aug. 1. And Hurricane Rita is causing even more uncertainty in the marketplace.

Robin Segur, manager for credit and collections at New York's Con Edison (ED ), had a meeting in recent weeks to discuss the market's volatility -- and how to keep the utility's "level payment plans" level so people clearly understand their energy use. "We haven't seen this before," Segur says. "I don't know when we'll be done discussing" and coming up with an answer to that question, he said.


  This winter the people who signed up for plans like Mariases' -- also known as "budget billing" or "level payment plans" -- might still have it easier than those who didn't. If they overpay, consumers on such plans keep their charges down on later bills. In other cases, the utilities break down consumers' underpayments into chunks that take place over a long period of time, effectively giving the consumer a bill deadline extension.

Which customers tend to use these plans? During a survey of 30 companies representing about 33 million natural gas customers last year, the American Gas Assn. and DataSource found that 15.5% of a typical utility's consumers are on level-payment plans. Companies with enrollment levels above that average came from cold weather states, such as New York and Nebraska. Those beneath the average came from warmer places such as Alabama. (Electric utilities also used balanced billing plans, while heating oil, which is provided by private dealers, generally do not.)

Sometimes utilities consider their customers' credit before letting them enroll. When the San Francisco Bay Area-based comedian Mike Lee signed up for a level-payment plan with Pacific Gas and Electric (PCG ) in January, 2004, the utility made him pay off about $200 of current and past-due bills before he could get started.


  "I thought it'd be better because they said they'd average out the bills and make it easier for me to pay in the winter," says Lee. "After doing it, I analyzed it and realized I was paying a high bill every month." He found it harder to judge his monthly usage against his charges, so he got off the plan a year later.

Before signing up for one of these plans, make sure you understand your company's specific terms, warned Janine Migden-Ostrander, who heads the Office of the Ohio Consumers' Counsel, which represents consumers in cases against utilities. Ask the utility to calculate some sample estimated payments for you, so you can compare those to regular bills and understand how your company would charge you.

While most utilities offer plans that enable customers to make regular payments, they all have their own rules on how to reconcile differences between the estimated and actual charges. If a bill is too high, some utilities might then give the customers a credit against future payments. If the bill is too low, they might charge more during later months to make up for the difference. Some utilities do this twice a year, and others might make changes only annually.

"There is a risk that the customer can be faced with a large bill," Migden-Ostrander says. She recommends keeping your utility informed about any changes in your energy usage, in order to help the company estimate your charges.


  When Mary Jane DeChiro opted for a level-payment plan with Niagara Mohawk about nine years ago, the administrative assistant expected to see her monthly bills change every fall and spring. Now she's finding adjustments in her mail within those six-month periods. For example, she paid $126 in February, 2005, $138 in March, and $71.30 in April.

Between May and September she paid $145 a month. The surprises affect her, "because I live on a strict budget," DeChiro says. She remembers having to revise her grocery budget downward once so she could make room for an unexpectedly high utility bill. "We ate more pasta and the kids didn't get to order any Friday night pizza," she recalls.

Alberto Bianchetti, spokesperson at Niagara Mohawk, said that DeChiro has been receiving quarterly updates on her bill since she enrolled. He declined to discuss specific information about DeChiro's bill, citing customer confidentiality.


  Not everyone has complaints. "Levelized billing plans can be a good thing for consumers," says John Howat, a senior policy analyst at the National Consumer Law Center, which helps consumers, their advocates, and public policy makers. "They're a useful tool, but ultimately we have a severe affordability problem." He says consumers are spending too much of their household budgets on the gas bill these days, no matter which way you charge it.

And as for Saul Mariases, the Illinois man who dropped his budget plan, when BusinessWeek Online contacted Nicor, a company official said she could not immediately comment on Mariases' situation. But Mariases said Sept. 20 that the company had called him to offer lower payments -- $120 a month -- if he would return to his budget-payment plan. He agreed.

Ryst is a reporter with BusinessWeek Online in New York

Edited by Phil Mintz

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