Summer Natural Gas Costs at Unprecedented Highs, Congressional Action Long Overdue to Address Rising Energy Costs

EVANSVILLE, Ind., July 15 /PRNewswire-FirstCall/ -- Summer 2008 natural gas commodity costs are now twice as high as the June/July costs in any previous year. The July 2008 price, which recently closed at more than $13 per dekatherm, even eclipses prices from the previous winter heating season, which averaged around $8 per unit, according to the New York Mercantile Exchange monthly settlement prices.

In prior years, the price of gas has dropped significantly in the summer as the use of natural gas for space heating decreased. This pattern afforded utilities the opportunity to refill their storage fields at lower prices, which led to lower prices in the following winter (compared to the daily spot market) when the gas was used by customers. Now that more electric utilities are turning to natural gas to produce electricity, year-round demand for natural gas is more constant, and this increase in demand has led to unprecedented summer costs.

"At a time when natural gas use should be at its lowest, average prices are at all-time highs," said Niel Ellerbrook, Vectren Chairman and CEO. "The natural gas commodity appears to be on a steady incline, and seasonal volatility is diminishing. Furthermore, a hot August nationwide or hurricane activity could send prices even higher and negatively affect consumers further for the upcoming winter heating season."

Vectren, through various advocacy groups and trade associations, continues to urge Congress to take action on what clearly has become an energy crisis and is encouraging its customers to contact their local, state and federal elected officials to do the same. Included in the plea for relief are the following solutions:

  -- Focus on energy efficiency and conservation to minimize demand;
  -- Support robust research and development efforts to help us utilize all
     energy sources, particularly coal, in an environmentally-responsible
     way;
  -- Allow drilling access to more federally-controlled land in America to
     oil and natural gas exploration; (President Bush just this week erased
     the executive order which banned offshore exploration and has asked
     Congress to do the same.)
  -- Redirect the primary consumption of natural gas to direct use rather
     than electric generation; and
  -- Ensure a balance of energy sources in meeting our country's energy
     needs, including the use of coal, renewables and nuclear power.

"Both short and long-term solutions are out there, but many of them require legislative activity or aid before they can begin," added Ellerbrook. "Our customers, who have been forced to absorb these costs, are likely already stressed given rising costs in food, gasoline and other key necessities. Vectren has been proactively working with customers to help them manage energy costs through a number of conservation-oriented initiatives and bill payment programs, however, we cannot control this steadily increasing market that continues to drive bills higher. A sound energy policy; which many, including Vectren, have been requesting for several years, is required, and only bipartisan Congressional action can make that happen."

Visit http://www.senate.gov/ or http://www.house.gov/ to locate your legislators and voice your opinion.

Other factors, such as the uncertainty surrounding potential climate change legislation, are also wreaking havoc on the natural gas commodity price. In 2007 alone, around 60 coal-fired power plants were either cancelled or put on hold. Until the Congress provides legislative certainty regarding the form of this regulation, these much needed plants will likely not be built.

"Government inaction has paralyzed the utility industry, forcing many energy companies to turn their back on our nation's most abundant resource, coal," added Ellerbrook. "Therefore, many are resorting to natural gas as the short-term solution for electric generation, which, in turn, will negatively impact both electric and natural gas bills."

As issued in a June press release, these high gas costs, coupled with forecasted high costs in the winter, will undoubtedly increase winter heating bills.

Vectren will issue its winter bill projections, likely in early fall, to help customers better understand what financial impact these higher prices will have on their total bills given gas costs make up around 75 to 80 percent of the bill during the heating season.

Natural gas is a commodity, like oil, bought and sold in a national deregulated market, and prices fluctuate daily due to supply and demand pressures. Vectren purchases natural gas on behalf of its customers and then passes those costs on to customers through the gas cost adjustment, which is listed on the Vectren bill as "Gas Cost Charge." Vectren is not allowed to profit from the purchase and sale of natural gas. Only gas costs approved by the Indiana Utility Regulatory Commission are recovered from customers on a dollar-for-dollar basis.