Energy economics studied by Nevada panel

Friday, Nov. 10, 2000 | 10:51 a.m.

Southwest Gas Corp. officials explained how natural gas gets to Southern Nevada -- and why it's been costing so much lately -- as the education process continued Thursday for the newly formed Nevada Electric Energy Policy Committee.

Natural gas is the fuel of choice for power plants in Nevada and an explanation of how gas capacity will affect the capability of electricity producers to generate power for the state is a critical component in the energy policy equation.

The 17 committee members, meeting in Las Vegas and Carson City by teleconference, also heard from experts on air quality and government welfare programs as the bipartisan panel appointed by Gov. Kenny Guinn prepared to issue its report on energy policy by Jan. 15.

Commission chairwoman JoAnn Kelly, a former member of the Public Utilities Commission, outlined the panel's educational process, which will continue the next two weeks with presentations on the relationship between the industry and the state's water producers, renewable energy and solar power, incentives to build supply in the state and restricting that supply to Nevada.

By December, the committee will begin organizing the structure of the report and possibly develop dissenting opinions to the majority viewpoint.

After learning about electricity production and the potential for more power plants last week, the committee turned to the industry that fuels those plants Thursday.

Tom Armstrong, vice president of gas resources and energy services for Southwest Gas, explained that the company's gas supply is transported to Nevada from gas fields in Texas, Oklahoma and Wyoming via pipelines. The Wyoming field is serviced by the Kern River Pipeline, operated by the Williams Cos., and the Texas and Oklahoma gas is transported by the El Paso Natural Gas Co.

The Kern River line delivers 443,000 decatherms per day while the El Paso line transports 187,587 decatherms per day. The average homeowner uses 4.9 decatherms in a year.

Richard Jordan, director of systems planning for Southwest, said the Kern River pipeline moves 721,000 decatherms on a line that sends the rest of the capacity to Southern California. Through pipeline pressurization improvements, capacity could be increased by 500,000 decatherms.

Additional capacity could be key to Nevada's energy policy because virtually all the new power plants planned for Southern Nevada would use natural gas to fuel them. While experts say six or seven new power plants could be built in Nevada in the immediate future, cost and capacity issues -- and whether power would be available to competitors that would serve the state in a deregulated market -- are unresolved.

Armstrong also explained why gas prices have increased by more than 50 percent since May. He explained that five factors affecting pricing that normally wouldn't have much impact individually converged at one time causing pricing chaos.

Possibly the biggest factor: Demand for gas skyrocketed when the price of oil went up, so gas prices followed oil's climb. Armstrong also said demand for gas has increased as the demand for electricity has climbed, fueled in part by the consumer electronics boom.

Other factors: Gas reserve storage is low and winter shortages are being projected, and drilling for new reserves is limited by personnel shortages.

Southwest recently asked for permission from the Public Utilities Commission of Nevada for a 27 percent rate increase, the second rate increase of 2000, to pass through a portion of an unprecedented increase in gas prices nationwide. The increase would raise the average Las Vegas customer's gas bill by $7.81 a month.

While building additional gas capacity is key to any new power plants, the committee also recognized that any new plants could impact air quality.

Assistant Clark County Manager Richard Holmes explained that the county already violates carbon monoxide and particulate pollution standards and has marginal nonattainment on ozone levels. Seven new plants, he said, could increase different types of pollutants between 1 percent and 5.5 percent, depending on conditions.

The committee also heard reports on the state's Low Income Home Energy Assistance Program and the Low Income Weatherization Assistance Program. The two welfare programs were reviewed because the state's poorest consumers are most vulnerable to energy price fluctuations.

The committee also heard a presentation from Dan Fessler, former chairman of the California Public Utilities Commission and an expert on utility industry restructuring.

Fessler said it may be difficult for Nevada to reverse course on deregulating the electrical industry, despite concerns from some lawmakers that are worried that the competitive environment could lead to skyrocketing prices similar to ones experienced this year by consumers in San Diego.

He said California regulators made some bad decisions at the same time that fuel costs were fluctuating and that led to high bills, not deregulation.

Fessler said the Guinn committee is an innovative approach to solving the problems associated with converting the industry and he encouraged regulators and lawmakers to apprise consumers that in a deregulated market, prices can go up as easily as they can go down, depending on economic conditions.