Panel: Consumers must be told of higher energy prices

Friday, March 16, 2001 | 11:02 a.m.

Energy companies must do a better job of explaining to consumers that utility deregulation may actually raise prices for homeowners and small businesses, as they are weaned off subsidies provided in the past by big companies, experts said at a national energy conference Thursday.

About 240 members of the Power Marketing Association are wrapping up a two-day conference in Las Vegas today at the Aladdin hotel-casino.

The association, which has an international membership of energy companies, is dedicated to developing deregulated utility markets throughout North America. Its spring conference in Las Vegas, titled "Power Markets 2001: Crisis and Opportunity," has included speakers and panels on a variety of issues, ranging from weathering the California energy crisis to explaining why electricity and gas prices have been so volatile.

Representatives of the major utilities serving the Las Vegas market weren't among the delegates of the event, which included a trade show with about a dozen energy consultant companies.

The Arlington, Va.-based association meets twice a year, once each in Las Vegas and Washington D.C., and is in the process of developing a national energy policy strategy.

Much of that strategy may evolve from some of the ideas aired at a panel discussion on the instability of gas and electricity markets in the past six months.

Panelists said a big problem in establishing deregulated markets is that most consumers don't really understand how they are supposed to work and they won't be happy when they learn they have to pay more under some conditions.

Jeff Beicker, senior vice president of Shell Energy Trading Co., Houston, said most residential consumers aren't aware that large commercial customers pay a disproportionate share of the total cost of providing electricity, thereby subsidizing residential ratepayers.

"That subsidy has to stop in a truly deregulated market," Beicker said.

Panelist Ed Silliere, vice president of risk management for Energy Merchants, said some of the states that have gotten off to a rocky start with deregulation haven't had truly deregulated markets. California, for example, capped rates and did not allow utilities an opportunity to recover their costs, he said.

As the utilities became more and more financially unstable, regulators had to tinker with the system and consumers never had a chance to see a truly deregulated market.

In Great Britain, Silliere said, consumers "are very aware of the pain" of high energy costs because they buy electricity the same way many Americans buy long-distance phone cards and use their cards to pay for power as they use it.

The panel also said most consumers mistakenly believe deregulation should result in lower prices for all classes of consumers when, actually, it enables consumers to make choices in service that could possibly lower their bills. With fuel prices as volatile as they are, panelists said, the best consumers can hope for is competition that could keep prices at reasonable levels, but not necessarily lower than what they've had in the past.

"The best way to get lower prices is through real choice and real competition," said Scott DeBroff, vice president of government and regulatory affairs for Choose Energy, Newton, Mass.

But as Nevada consumers have been told, it's impossible for true deregulation to occur when supply is so far out of balance with demand -- a point stressed by Brad Leach, senior director of the New York Mercantile Exchange, in a presentation preceding the panel.

Gov. Kenny Guinn has put the brakes on deregulation in Nevada until conditions are right and energy policy advisers have said that can't happen until fuel supplies stabilize.

Leach listed a series of solutions to solving the current energy crisis and getting deregulation back on track in several states. His ideas:

* Build more power generation and prospect for more gas. Leach said companies are working in several states to win approval to develop more plants and natural gas developers already have begun drilling for more gas.

* Build more transmission lines for electricity and more pipelines for gas. Sierra Pacific Resources, Reno, the parent company of Southern Nevada's dominant electric utility, Nevada Power Co., recently announced a $300 million transmission line project and Kern River and El Paso Natural Gas -- the two major wholesale suppliers of natural gas to Southwest Gas Corp. -- are developing compression stations to increase the volume of natural gas that can be transported to Nevada and California in existing pipelines.

* Step up development of alternative energy sources, including fuel cells, micro turbines, wind power and solar photovoltaic units. A wind farm project recently was proposed on Nevada Test Site land.

* Conserve existing resources. Sierra Pacific Resources Inc. Chief Executive Officer Walter Higgins earlier this week unveiled a conservation initiative aimed at Nevada consumers.

* Improve the regulatory environment. Leach pointed out that California built considerable power demand when its economy pulled itself out of recession, but regulators did not allow companies to develop power plants and transmission lines to handle the increased demand. The reason: public policy favors environmental concerns over development, which Californians like, but angers residents of other states who feel their environment is sacrificed instead.

* Better explains energy use and the economics of the marketplace to consumers.

Southwest Gas spokesman Roger Buehrer said his company began a comprehensive consumer education program in October when the company requested rate increases to cover the increased cost of fuel, which are twice what they were a year ago.

Southwest recently received permission from the Public Utilities Commission of Nevada to raise rates 27 percent to pass through to consumers a portion of an unprecedented increase in gas prices nationwide. The increase raised the average Las Vegas customer's gas bill by $7.81 a month.

Buehrer said consumers often forget that Southwest reduced gas rates 20 percent in 1999 when wholesale prices were lower.

"We were faced with a difficult situation because the rates (of wholesale gas) increased so dramatically in such a short period of time," Buehrer said.

The company tried to explain the increases in bill stuffers, newspaper advertisements and a media campaign. Southwest and Nevada Power were criticized for spending so much on the campaign at a time when gas and power rates were going up.

In that campaign, Southwest said electric generation had increased dramatically due to the stronger economy and increased demand led to higher wholesale prices. The company also said a lack of storage cut into available reserves and exploration and drilling were down because the price of gas was so low in the 1990s that it didn't pay to find more.