Variable rates for heating hit customers in the wallet

This hall with a 54-megawatt steam turbine is part of Veolia Energy's steam loop for its 300 customers in Center City.
This hall with a 54-megawatt steam turbine is part of Veolia Energy's steam loop for its 300 customers in Center City. (CHARLES FOX / Staff Photographer)
Posted: February 27, 2014

Pam Clifton, the property manager of the Ellington condominiums at 1500 Chestnut St., opened her mail last week and got a kind of triple-play utility deal - not one she wanted.

The monthly steam bill from Veolia Energy to heat the 21-story building she manages was $54,860 - triple the previous month's.

"We've never had anything like this before," she said. "It's brutal."

Veolia said Tuesday that it was sending letters to many of its 300 customers on the Center City steam loop blaming the bills on unprecedented volatility in natural gas markets, caused by January's extremely cold weather.

The hefty bills for Center City steam customers - including many high-rises, hospitals, universities, and government buildings - are the latest repercussion of the winter's wild energy markets, which have hammered gas, propane, oil, and electricity customers whose rates were not locked down.

The Pennsylvania Public Utility Commission has received 1,478 high-bill complaints so far this year, compared with 345 during the same time last year, said Jennifer Kocher, a PUC spokeswoman. Most are from residential electricity customers who signed up for variable-rate offers. Some of their bills quadrupled last month.

In Pennsylvania and most nearby states, customers are free to shop for a competitive supplier of electricity or natural gas. But the commission does not regulate the prices of competitive marketers in the way regulates the distribution charges of incumbent utilities, like Peco, that deliver the electricity and gas.

Some marketers sign up customers to fixed rates for set periods. The customers who opted for variable rates are now experiencing the downside of a free market.

The PUC last week opened a proceeding to examine variable-rate contracts to make sure the suppliers lived up to their agreements.

But much of the commission's action appears to be geared toward educating consumers to the fact that variable rates involve a degree of risk - and some rates may be increased without limitation.

"The commission is very concerned about the volume of complaints we've received," Kocher said.

What's becoming clear is that not just unsophisticated residential electricity customers have been swept up in the winter price tsunami.

When Ann Davis, owner of Total Table linen rental in Paoli, got her natural gas bill this month, it had unexpectedly quadrupled to about $4,000.

"My first reaction was, 'We must have a gas leak.' And then I saw that the bill was for about the same amount of gas that we usually use."

She called her energy supplier, UGI Energy Services, and discovered her fixed-rate contract had lapsed into a variable rate more than a year before. She did not notice until it was too late.

"We've all seen these commercials that the U.S. is now the largest supplier of natural gas in the world," she said. "I'm sticking with a fixed rate and not playing the stock market with my energy bill."

Energy suppliers say they are merely passing along market costs, which hit historic highs last month.

"Customers who are with any sort of variable rate are seeing those costs passed on to them," said David Lindenmuth, the director of marketing for UGI Energy Services.

Veolia Energy upgraded its power plant at 2600 Christian St. to use more natural gas in recent years. But it got caught in the same price squeeze that befell other energy consumers.

"We made significant investments to take advantage of this cheap, clean, abundant natural gas," said Michael Smedley, Veolia's regional vice president.

There wasn't a shortage of natural gas in January, but a shortage of pipeline capacity to move the gas to markets.

Natural gas that typically costs $5 a thousand cubic feet delivered to Philadelphia averaged $20 in January, he said. The price peaked at $123. During the previous five years, it had never exceeded $14.50.

Veolia was able to reduce its costs by switching to fuel oil, which is typically more expensive than natural gas, Smedley said.

Veolia even arranged for two emergency barge deliveries of fuel oil to its main plant in January. Those deliveries did not raise customer prices, he said.


amaykuth@phillynews.com

215-854-2947

@maykuth

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