Officials Estimate Energy Costs Will Rise $70 a Month in Nevada, Other States

Sep. 13–The cost of natural gas in the Mountain region, which includes Nevada, is expected to be 26 percent higher this winter than last year, according to the U.S. Energy Information Administration.

“We estimate that if gasoline, oil and natural gas prices follow paths now built into futures markets, overall consumer prices will be 1 to 1.25 percent higher over the second half of the year than they would be if energy prices had remained at the average levels in (the second quarter),” New York securities firm Deutsche Bank observed in a Sept. 9 report that estimated increased gasoline, oil and natural gas costs would raise the typical household’s energy bill by $70 a month.

Rebecca Wagner, Gov. Kenny Guinn’s energy adviser, predicted that Hurricane Katrina will impact rates next year for Nevada Power, which uses gas to generate electricity, and for Southwest Gas Corp., which sells the fuel for use directly in many homes.

“I’m not concerned about Katrina’s effect on the near-term. I would say that it would be next year that we would see the effect,” Wagner said.

Hurricane Katrina can be blamed for only part of the problem, though. Natural gas prices have been skyrocketing for the past few years.

Natural gas cost $2.42 per thousand cubic feet in January 1999, but it sold for $8.27 in June, the latest date reported for Nevada by the information agency. That’s higher than gas prices reached during the Western energy crisis of 2000 and 2001, which sent electricity prices soaring. That was partially blamed on higher prices.

Tim Hay, the former consumer advocate who negotiated a $34 million settlement from pipeline company El Paso Corp., said there was evidence of market manipulation in the natural gas markets during the Western energy crisis.

High gas prices today seem to be a long-term trend stemming more from supply constraints, which could be intensified by loss of gas production on the Gulf Coast and a colder than normal winter in parts of the country, he said.

“If that comes to pass, the gas inventory could be drawn down very quickly,” Hay said.

“We have a real problem,” said Thelma Clark, vice president of the Silver Haired Legislative Forum who serves as a lobbyist for the Nevada AARP.

Many seniors, who rely on Social Security payments, receive too much income to get welfare or government assistance with power bills. Yet, they can’t keep up with increasing costs for medicine, health care, food, gasoline and utility service, she said.

“They say to me: ‘Where are the utilities going to get the money. We don’t have it,’ ” Clark said.

Wagner suggested that consumers consider making energy conservation improvements in their homes. “If we’re not using (gas), we don’t have to buy it,” she said.

Retailers who sell to low-income consumers are going to feel the squeeze as well, said Michael Metz, an analyst with Oppenheimer & Co. in New York.

High natural gas and gasoline prices “may well be the straw that breaks the consumer’s back,” said Martin Lobel, an energy attorney in Washington. “The people who heat with natural gas are going to feel a double whammy.”

Southern Nevada consumers can take some comfort in knowing the projected higher cost of natural gas will not be used as the basis for raising rates until later. But gas and electric utilities already are seeking rate increases to offset prior increases in the cost of natural gas.

The Public Utilities Commission of Nevada is considering two recommendations for increasing Southwest Gas rates. One is based on historical prices and would raise rates 2.8 percent. That number is believed to be unrealistically low compared to a 13.4 percent projection that dates from April.

Under a new state law that’s effective Oct. 1, Southwest Gas may seek approval from the PUC to file quarterly gas rate adjustments. Bill Moody, vice president of gas resources for Southwest Gas, said he did not know whether Southwest Gas will need to seek another rate increase before the end of this winter.

Nevada Power Co. may obtain rate increases for the natural gas it burns at its power plants and for purchased power, which is sold based on the costs of generating power at gas-fired plants.

Nevada Power has endorsed a PUC report that indicates the average residential customer’s monthly bill should be increased $10, to $130 a month. That’s higher than the $4.86 increase it originally sought to offset the cost of fuel and purchased power.

Customers should note that Nevada Power is scheduled to file another rate increase for fuel and purchased power costs in January, and that increase could become effective in mid-summer.

Nevada Power will be using gas to generate 80 percent of the electricity coming from its own power plants next year, said Roberto Denis, senior vice president of the parent company, Sierra Pacific Resources.

The good news, he said, is that it has two new gas-fired power plants, the Chuck Lenzie Generating Station and Silverhawk Power Station. They are 30 percent more efficient than the gas-fired plants generating electricity for the wholesale market.

Nevada Power and Southwest Gas are taking measures designed to reduce volatility in their rates.

At Southwest Gas, fuel cost increases will be dampened in part because the company buys about half of its anticipated gas needs at fixed prices in advance. It makes these fixed-price purchases gradually over the 18 months before a winter season, meaning it has secured most of its fixed-price contracts for this winter, Moody said.

It buys the remaining gas under variable price contracts, which would reflect increased prices for gas. Moody said Southwest Gas doesn’t buy gas from the Gulf Coast area for customers in Southern Nevada.

“Most of the gas that we purchase in the West is used in the West and cannot go east very easily,” he said.

Nevada Power has hedged or, in effect, entered contracts that allow it to cap the price it pays for natural gas through April 1, Denis said.

The company purchased gas at an average of $6 per million British Thermal Units last winter and has capped prices until April 1 at $7.50, said Sonya Headen, a Nevada Power spokeswoman.

The company will start entering hedging arrangements for the next period in December, Denis said.

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