Las Vegas utilities face higher prices for natural gas

Kevin Rademacher

Tuesday, March 4, 2003 | 11:03 a.m.

The price of natural gas is rising, but officials with Southwest Gas Corp. and Nevada Power Co. are unsure whether customers will see higher bills as a result.

The last March natural gas contracts were sold on the New York Mercantile Exchange last week for $9.13 per million British thermal units (BTUs). February contracts closed at $5.66 per million BTUs.

March 2002 contracts closed at $2.39.

Cold weather in the East has been blamed for much of the price increase, leaving Nevada insulated from some of the price fluctuation. At the trading point along the Southern California border, natural gas has been selling about $2 less than the New York exchange price, said Paul Rubeli, executive vice president of the Mobius Risk Group of Houston.

"We've been fortunate and had a mild winter in the West," said Roger Buehrer, spokesman for Southwest Gas.

Buehrer added that the company's "Price Mitigation Program" insulates customers, to some degree, from price spikes. Southwest Gas began buying power for its current demand at lower rates a year ago, he said. With that, only about half the company's supply is subject to the volatile spot-energy market.

"In January, the warmest in history here, we didn't have to go into the spot market," Buehrer said. "(It) does protect us from price spikes, but long term, if prices continue to be high, we could all pay more."

Southwest Gas will go before the Public Utilities Commission this summer seeking to adjust its rates based on the price it has paid for gas. The company, however, will not know if rates will go higher or lower until its costs are tallied at the end of March.

Despite lower demand in the West, natural gas supplies nationally are on pace to hit a record low of 711 billion cubic feet in storage by April, according to the UBS Warburg's Natural Gas and Electric Utilities Group. This compares to 1,500 billion cubic feet in 2002 and 738 in 2001.

The higher prices will affect Nevada as summer approaches, said Tim Hay, state consumer advocate. Hay pointed to new electric generation plants that have come online since the summer of 2001, when Western power companies scrambled for additional supply. Those new plants, he said, are largely natural-gas powered.

"We have a confluence of events here," Hay said. "We have apprehension over the events unfolding in the Middle East and we have extremely cold weather in the East.

"Nevada Power is exposed to a substantial degree."

The local electric utility, he said, is still subject to buying a large chunk of its power on the wholesale market. That task, he said, is made more difficult because of the company's recent financial struggles.

"(Parent company) Sierra Pacific and Nevada Power, their financial situation is so degraded that when there are good deals they can't take advantage," Hay said.

Swami Venkataraman, a utilities analyst with Standard & Poor's, agreed.

"They are in all this trouble and wholesale prices go up again," he said. "It certainly doesn't help."

Sierra Pacific will go before the Public Utilities Commission this month seeking to recover the $195 million spent on power last year. The utility also is waiting for a district court ruling in its effort to recover $434 million disallowed by the PUC in last year's more than $900 million rate case.

Sonya Headen, spokeswoman for Nevada Power, said the company would not speculate on the gas market's impact on its customers or reveal proprietary hedging information.

"No one can say for certain what will occur for the near or not-too-distant future," she said. "We can't even speculate."

Nevada Power, however, is dependent on gas for electric generation.

Three of the six generating plants owned by the company are gas-fired. The company generates 58 percent of the power used by its customers. Of that, 36 percent is from coal-fired plants, 18 percent from natural gas plants and 4 percent from hydroelectric power generated at the Hoover Dam.

The remaining 42 percent is purchased on the open market.

While observers are concerned with the soaring gas prices, analysts said the current situation is far from a repeat of the chaos of 2001.

"There's a lot more generation in place and power demand isn't as high," Venkataraman said.

While much of the new generation is gas-powered, he pointed to better hydroelectric supplies than 2001. That year, hydroelectric levels were 40 percent of average, he said. While they were better than 100 percent last year, they sit at 70 percent now.

The current year also is free from the pressures of outside forces, Venkataranam added.

"It appears there were a lot of trading shenanigans in 2001," he said. "Those issues just aren't there this year."

Rubeli agreed.

"There's no one to blame this year," he said. "There's no Enron out there."