By Mark Scheer
Like most people in Niagara Falls, Ferry Avenue resident Aurelia Martin gets a bill from National Fuel every month.
Generally, it runs about $200.
Sometimes it’s a little higher.
Either way, Martin knows she can’t afford not to pay it.
“The way they do it, it’s hard to gauge by your bill,” Martin said. “I don't even really try to understand what it’s all about.”
Martin’s not alone in that respect. When it comes to paying for a vital service like home heating, it’s not uncommon for National Fuel customers to simply send a check, not knowing exactly what they are getting for their money.
So what happens to the average customer’s payment?
A portion of the proceeds are returned to the company in the form of profit. The largest portion covers the cost of the fuel, delivery of the product and the company’s operational expenses. A rather hefty chunk actually gets sent to the state of New York to cover sales tax and other fees.
Where does the money go?
According to National Fuel, every dollar of revenue received from the average customer is split up into five major categories — gas purchased, other operating costs, taxes, earnings and interest charges.
The largest percentage is devoted to the cost of the actual fuel and the price for delivering it to homes and offices.
The company negotiates with producers to purchase gas supply at the wellhead. Prices established through those negotiations are largely guided by market prices at the New York Mercantile Exchange. Transmission prices are established and regulated by the Federal Energy Regulatory Commission. Transmission involves the delivery of natural gas from areas where it is produced through interstate pipelines to consumers. The prices are regulated by the federal government because the pipes cross state lines.
Delivery service charges applied to customers’ bills are set and regulated by the New York state Public Service Commission, a body that oversees the operation of utility companies, including National Fuel. The commission determines delivery service rates based on case filings made by National Fuel and subsequent reviews by commission members who decide what level of charges are just and reasonable.
As per commission policy, gas supply and delivery service charges are listed separately on the bills of National Fuel customers. This allows customers to choose suppliers of natural gas services other than the utility. Delivery service charges are paid by all customers, regardless of whether they choose an alternate supplier. Supply charges are billed only to National Fuel customers that choose the utility to provide their gas supply services.
According to National Fuel, 57.29 cents of every dollar received by the company covers gas purchased. Another 20.19 cents of every dollar is devoted to “other operating costs,” which includes items like pipeline maintenance, staff and other operational expenses.
“I don’t think that people truly understand that the gas is the biggest portion of their bill and that it is a direct pass through,” said National Fuel spokesperson Nancy Taylor.
Taxes. Taxes. Taxes.
The third largest portion of the average National Fuel customer’s bill involves taxes.
Every bill includes a Tariff Surcharge line, which refers to the gross receipts tax charged by New York state and some municipalities. The charge is similar to a sales tax, although it is authorized under a separate provision of state law. The tariff is applied to overall company revenues, so it covers both supply and delivery charges.
National Fuel customers are also charged sales tax.
The amount depends on where you live.
New York state applies a 4 percent sales tax charge on National Fuel’s commercial customers. Niagara County applies another 4 percent to commercial users and residents who receive home heating services from the company.
Customers in the Niagara Falls School District are somewhat unique in that the district applies an additional sales tax charge of 3 percent. Taylor said similar sales tax charges are applied in the Lackawanna and Hornell school districts.
Falls School Superintendent Cynthia Bianco said the district decided to begin collecting the sales tax a few years ago in lieu of raising local property taxes to balance its budget.
Add it all together and business owners in Niagara Falls that use National Fuel services received the highest level of sales tax charges at 11 percent.
Delivery charges
National Fuel customers are also required to pay a delivery adjustment charge that includes 14 separate cost elements that are tracked on a year-to-year basis and recovered through the fee. This rate is calculated monthly and filed with the Public Service Commission.
The largest portion of the charge is currently the most controversial. It is the temporary state assessment, or TSA, which represents 65 percent of the delivery adjustment charge collected by National Fuel. The TSA charge is a tax on utility services — including natural gas and electricity. It was increased as part of the current year’s state budget from 0.3 percent to 2 percent of gross operating revenue. The increase went into effect July 1.
The fee increase was approved to raise more than $500 million in revenue for the state. It is expected to draw more than $2.2 billion into the state’s coffers through 2014, when it is scheduled to sunset.
Business advocacy groups like the Business Council of New York State, Inc. continue to lobby state lawmakers for a repeal of the tax, which they say has jacked up prices for natural gas and utilities at a time when New Yorkers and New York business owners can least afford them.
Michael Moran, a spokesperson for the business council, said the state’s “hidden taxes” on utility bills don't add up in a place like New York where taxes are high and companies are struggling.
“A lot of people are up in arms about the fuel costs or their insurance costs, but if you look at it, a lot of the cost has to due with these taxes,” Moran said.
According to National Fuel, the utility assessment increase resulted in an additional 2.47 cents of every dollar delivered to the company being applied to taxes.
Profit margin
The remaining portions of National Fuel’s revenues are devoted to interest charges and earnings. According to the company, 3.02 cents of every dollar received is applied to interest charges. Taylor said the amount represents interest paid by the company on money borrowed for things like capital projects. Finally, 4.79 cents on every dollar is recorded as earnings for the company.
National Fuel says February comparisons show the company’s rates are currently the lowest in the state among the natural gas utilities.
National Fuel recommends that customers do all they can to help themselves to keep their bills low. Taylor said adding proper insulation, sealing up cracks and crevices in the home or office and purchasing newer, more efficient heating equipment are all important steps customers can take to conserve energy and reduce cost.
“The thing customers can do to most effect their bill is to use less gas,” she said.
Contact reporter Mark Scheer at 282-2311, ext. 2250.
