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The Gas Executives Forum: Gas Pains

Commodity price upheavals are energizing gas utilities to evolve their business models.

Fortnightly Magazine - May 2006

who have a choice have switched fuels and others have shut down or gone offshore. Many will never come back, and we’ve lost jobs in basic manufacturing. Utilities that depend on natural gas as a commodity are facing anger from customers, either directly because they are putting high prices into the bill, or indirectly in regulatory proceedings. 

In Maryland, the prospect of natural-gas-driven price increases for electricity is causing a huge amount of angst. The Maryland general assembly voted to eliminate the state public service commission. With things like that happening, you have a sense that it is out of control politically and in a market sense. These things simply have to change.

Fortnightly: What do you see as the most important changes?

Higgins: We are urging public-policy decisions that increase the opportunity for developing alternative generation sources. The country should look at all the things we can do to take pressure off natural gas.

Of course we are encouraging access on a national basis to more areas to explore and drill for natural gas. LNG and the Alaska natural gas pipeline are important parts of the solution. And we are supporting Nevada’s renewable portfolio standard, which requires that by 2015 at least 15 percent of the energy we sell must come from renewable sources. But the United States needs a lot of energy in the next couple of decades, and if lawmakers don’t make it possible to build coal, nuclear, and transmission assets, there is a crisis coming. Natural gas at $20 or $30 per MMBtu is a scary proposition.

We announced plans to build a large coal-fired generation center in eastern Nevada. The first two units will be supercritical pulverized coal, and the second two units will be IGCC—as soon as the technology is proven. Also, we’ve said we will make sure we have carbon-intercept potential in all four units, so whatever carbon rules come down the road we will be prepared to execute them.

Fortnightly: What are you telling Sierra Pacific shareholders about gas markets?

Higgins: The most immediate effect is that we are making conscious decisions to avoid using gas for future generation. So our future decisions will focus mostly on coal to provide a less volatile portfolio. 

Fortnightly: How are gas prices affecting Sierra Pacific’s regulatory proceedings?

Higgins: Retail gas utilities face the prospect of selling a product that makes their customers mad a lot of the time. We are going through the first rate case in 12 years in our northern Nevada jurisdiction, where we distribute gas. 

Some years ago Nevada went through an arduous period during which our power and fuel purchase practices were subject to intense scrubbing and scrutiny, and we paid the price quite dearly. We’ve straightened it all out, and all the participants now know what our costs are and they understand when there is a need to increase costs. But it doesn’t make it easier for regulators when it becomes necessary to raise prices. 

We try to help with aggressive conservation and hedging programs, and with good documentation for allowing recovery