Natural gas prices could burn a hole right through your pocket this winter. Many fitness facilities nationwide are bracing for higher than normal energy bills due to the rising demand, stagnant supply and recent hurricane damage.
Matt Remick, assistant general manager of Rochester Athletic Club in Rochester, MN, said last year, his club averaged monthly gas bills of $13,000 to $14,000 during the winter months, but this year, he expects to pay $21,000 a month to heat his 250,000-square-foot multipurpose health club, warm the swimming pool and operate the dryers.
Remick views the higher gas prices as a cost of doing business and plans to find ways to work the higher expenses into his budget. But other health club owners, such as Patty Goldammer, owner of the Alpena Health and Racquet Club in Alpena, MI, see no choice but to pass on the higher energy costs to their members.
“They're predicting gas prices to go up by 50 percent,” she said. “We try to keep our dues as low as possible, but it will have to come out of someone's pocket.”
In the meantime, student fitness centers are also bracing for higher utility bills. Like other fitness facilities, the University of Kansas (KU) Student Recreation Fitness Center expects to see its heating bills increase as temperatures drop. KU's rec center uses student fees to fund its operations (including heating) and budgeted about $250,000 for an entire year of utilities, said Mary Ann Chappell, director of KU Recreation Services. If prices jump the expected 25 to 50 percent due to hurricanes Rita and Katrina and other market disruptions, the center's normal monthly bill of $15,000 to $20,000 could top the allotted budget. The 100,000-square-foot facility's utility budget is based on a $2.50-per-square-foot formula. The KU Rec Center has budget reserves that can be channeled to cover costs without hurting the current budget year. Reserves are important in this type of a situation, Chappell said.
“Keep in mind that some things just happen out of one's control, such as higher energy costs, and that when you are tempted to use your reserve for something else, you should really analyze before making expenditures,” she said.
Gas Price Hike
The shortage of natural gas will impact fitness facilities' bottom lines, said James Williams, an energy economist for WTRG Economics, a London, AR-based firm that provides data, analysis, planning and forecast services for the energy and petrochemical industries. He said the prices for natural gas are the highest they've been since World War II.
“Last year, the price for natural gas was very high, and it's more than twice what it was a year ago,” he said. “These kinds of prices may not be abnormal if you saw it for one week during a cold snap in the winter, but in October, these prices are absolutely unheard of.”
The severity of the effect of the natural gas prices depends on the weather in the different areas of the country, he said.
“If we have a late or a warm winter, we won't have any problems,” Williams said. “If we have a cold, early winter, it could get worse, and the prices could go even higher.”
When the utility companies get hit with higher natural gas prices, many pass on these costs to consumers through a fuel cost adjustment. Compounding the problem, commercial businesses such as health clubs don't get as many financial breaks as residential customers, said Peter Beutel, president of Cameron Hanover, an energy risk management firm in New Canaan, CT.
“We're in an energy crisis, and we're taking billions of dollars out of the pockets of businesses and consumers for energy costs,” he said. “These gas prices will definitely have an impact, and it won't be pleasant. It will have the biggest effect on the clubs in the North, who will be hit hard by heating costs this winter.”
Williams said the increase in natural gas prices will affect fitness facility owners in two ways. First, they'll be paying as much as 40 percent to 50 percent more for their gas bills. Secondly, their members who heat their homes primarily with natural gas will have to spend about $350 (48 percent) more this winter in fuel expenditures. With their energy bills skyrocketing, homeowners could cut back on certain expenses — such as health club dues.
Remick hopes that his facility's addition of a 50,000-square-foot family entertainment center will aid retention, but he expects money to be tight for some of his members.
“I hope the higher gas bills won't put too big of a pinch on disposable income for our members so they drop their membership,” he said.
To trim his facility's gas bill, Remick is searching for ways to save energy. Drying towels is one of the club's largest energy expenses, so the club plans to ask members to limit their towel use to conserve natural resources, he said. He's also walking through the club to see if there are zones that can be set at a lower temperature.
“We're looking at dropping the temperature a degree or two in certain areas,” he said. “We don't want to make it uncomfortable for our members, but in areas like the group exercise studios, our members are upping their own body temperature out on the floor.”
The more a health club can reduce its consumption of natural gas, the lower their energy bills will be this winter, said John Ulrich, director of utilities for the city of Palo Alto, CA. Since heating water is one of the largest energy costs in a fitness facility, clubs can save money by investing in higher efficiency boilers or instant hot water systems.
“Instead of using large boiler tanks to hold water, these systems are much smaller and hyperheat the water as it comes through the pipes,” said Rod Heckelman, general manager of Mount Tam Racquet Club in Larkspur, CA. “Then you don't have to heat the water in the tank all night long, which wastes a lot of energy.”
KU is saving money on its gas bill by maintaining a central boiler plant rather than having individual boilers in every building. KU uses natural gas as its primary fuel for its central steam plant that distributes heat to campus buildings, including the Student Recreation Fitness Center, via an underground steam tunnel system.
“Thus, the maintenance and operation costs are cheaper, and based on the volume of natural gas used at the central plant, we get a little better rate on natural gas than if each building was considered as an individual gas customer,” said Doug Riat, director of KU Facility Operations.
Alternative energy technologies are another option for fitness facilities looking to slash energy costs. The price of natural gas could increase to the point where solar heating, which provides heat for hot water, space heating and swimming pools, would be a cost-effective alternative, said Andy Walker of the National Renewable Energy Laboratory. However, Williams cautioned fitness facilities that these types of systems have both initial and ongoing costs and should be viewed as a long-term rather than an immediate solution.
The efficiency of these systems also depends on the amount of sunlight, Heckelman said. He uses energy from a solar water heating system to heat his outdoor pool. During the summer, the system covers 40 percent of the pool's heating cost, but in the winter, the savings drops to 10 percent. To gain even more benefit from solar technologies, he invested in a $1.3-million, 150-kilowatt photovoltaic system that generates enough power for 50 homes. The 42,000-square-foot club has a two-way meter, so on sunny days, the system generates enough power to sell energy back to the utility company.
While the solar panels help cut electricity costs by 35 percent, the system doesn't affect the facility's gas bills, which increased from $2,862 in October 2004 to $4,598 in October 2005. To deal with the higher gas rates, he's looking into buying the gas directly rather than purchasing it from his local utility company. Clubs can also opt for a balance payment plan with a utility company to soften the blow of high energy bills, Ulrich said.
“Overall, it doesn't save you money, but it allows you to even out your bills throughout the year,” Ulrich said. “Whatever health clubs decide to do, they need to do something now. The current price of gas is astronomical, and when they get their first bill, they'll see that it will be much higher than last winter.”
What's Driving Up the Price of Natural Gas?
Nearly 90 percent of the respondents to an online poll on Club Industry's Fitness Business Pro's Web site (www.fitnessbusiness-pro.com) expect their energy bills to increase significantly this winter. But when higher gas bills hit their mailbox, they may not know the cause for the increase in gas prices. Energy Economist James Williams places most of the blame on the hurricanes, which damaged gas processing facilities and pipelines. Gas companies typically store natural gas in underground caverns and facilities during the late spring and early fall to supplement demand. But this year, the hurricanes caused gas production to lag a month and a half behind schedule. He estimated that at least 70 percent of the Gulf of Mexico's natural gas production remains off-line.
“None of the natural gas that was taken off-line by Hurricane Katrina had come back online by the time Rita hit, which compounded the problem,” he said. “During that entire period, gas wasn't available for consumption or to add to storage. We're going to enter this season with 10 percent less gas in storage than last year.”
A small percentage of natural gas is liquefied and then imported to North America, but the majority of natural gas is produced in either the United States or Canada, he said. Americans use more gas in the winter than in the summer, so the timing of the hurricanes could cause the natural gas prices to continue to increase throughout the 2005-2006 heating season, which runs from October through March.
Energy Savings Checklist
- Turn off all unneeded lights, computers and monitors, appliances, heaters, motors, fans, electronic equipment, pool heaters and pool pumps.
- Hire a building inspector to make sure you have enough insulation.
- Lower the temperature in your group exercise areas or basketball courts.
- Install solar water heating systems to reduce the cost of heating water with natural gas.
- Prevent leaks around windows and doors.
- Limit the use of towels in your locker rooms and spa areas.
- Install low-flow shower heads or instant heating systems.
- Invest in a heat pump water heater, which can provide up to a 60 percent energy savings over a conventional electric water heater. Clubs can use these pumps to heat their pools, spas and service water.
- Check the efficiency of your boiler. If it's in the 70 percent to 80 percent efficiency range, consider investing in new equipment with 90 percent efficiency or above.
- Look into a balance payment plan with your local utility to spread the cost of natural gas throughout the year.
- Buy your natural gas direct rather than purchasing it through your local utility company.
- Consider reducing your operating hours.