Thursday, September 21, 2000

Government told to leave energy alone

Word at summit: Price caps would worsen shortages

By Mike Boyer
The Cincinnati Enquirer

        COLUMBUS — Call it a crisis, or an energy shock, or a “short-term critical situation” as Ohio Gov. Bob Taft did Wednesday.

        Whatever you call it, consumers are facing sharply higher natural gas bills this heating season — as much as 20 to 40 percent from a year ago, according to industry estimates.

        Cincinnati Gas & Electric Co., a unit of Cinergy Corp., has already forecast that rates through November will be 26 percent higher than a year ago.

        So, what should government do?

        Cincinnati Gas & Electric and Union Light, Heat & Power Co. in Northern Kentucky announced in August that customers would face significantly higher gas rates this fall, as higher demand and tighter supplies have fueled higher natural gas prices nationally.
        A typical CG&E residential customer using 10,800 cubic feet of gas monthly will pay $83.33 a month from September through November, compared with $74.44 for June through August.
        A ULH&P residential customer using the same amount of gas can expect to pay $90.02 a month from September through November versus $83.30 a month for June through August.
        Nothing, said a series of industry officials and experts participating in a natural-gas summit here Wednesday sponsored by the Interstate Oil and the Gas Compact Commission and hosted by Mr. Taft and Alaska Gov. Tony Knowles, chairman of the voluntary commission.

        Despite the spike in prices, “government needs to avoid the temptation to intervene,” said Keith Bailey, chairman and CEO of Williams Co., a leading gas distributor.

        Government price caps would cause further shortages, speaker after speaker said.

        Government regulations would also dry up capital investment needed to more fully develop the nation's natural gas supplies, said Mr. Bailey.

        “We want to call attention to the crisis, what I would call a short-term critical situation so Ohioans can be prepared,” Mr. Taft said.

        He said the state stands ready to help low-income residents facing high natural gas bills with an assortment of aid programs.

        Ohio was picked to hold the daylong conference — which drew more than 300 natural-gas producers, suppliers and regulators — because it's the nation's seventh-largest natural-gas consumer.

        Officials said the rise in gas prices is being fueled by the strong economy and sharply higher use of natural gas to produce electric generation.

        “It's a reprioritization of the U.S. energy economy,” said Daniel Yergin, author and chairman of Cambridge Energy Research Associates, a Cambridge, Mass., research organization. Mr. Yergin won a Pulitzer Prize for his history of the oil industry, The Prize.

        Two decades ago, the federal government prohibited the use of natural gas to generate electricity because of fears that natural gas was a dwindling resource, he said. Now, he said, natural gas will be critical to generating the electricity needed to drive the digital economy.

        Kenneth Lay, chairman of Enron Corp., a leading energy producer based in Houston, said 20 years ago estimates were that North American natural-gas reserves were about 500 trillion cubic feet. Now, estimates are that reserves are 2 1/2 times that amount.

        “That's at least a 60- or 70-year supply,” he said.

        “Gas supplies will be adequate to meet winter heating needs,” said Robert Skaggs, president and CEO of Columbia of Ohio, the state's largest gas retailer. “But customers will pay a lot more this winter.”

        The wholesale price of natural gas has more than doubled over the last year from about $2 per thousand cubic feet to about $5.

        “Price is a symptom; not the problem. The supply is the problem,” said Thomas Robinson, director of research for Cambridge Energy Research Associates.

        While the United States and the rest of North America have more than enough gas in the ground and under the ocean, the recent depressed state of the market hasn't been enough to trigger more development of those reserves.

        That's changing, officials said, as higher prices are triggering more drilling activity, but it will take a couple years for that activity to drive prices down.


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