Sunday, July 27, 2003

Over the past five years,obtaining natural gas service at low cost has been extremely difficult for local energy providers. Wild price spikes and an overall increase in utility bills have put an undue burden on the nation’s natural gas customers. But 92 percent of those customers are served by for-profit corporations.

The other 8 percent of natural gas users are served by public gas systems. Public gas systems operate not for profit, but for the benefit of their customers,who are also the systems’ owners. As a result, public gas systems are uniquely focused on maintaining low and stable natural gas prices and passing the savings on to their customer-owners.

Twice in 2000 — before any problems were acknowledged by the mainstream of the energy industry—a group of nearly 600 public gas systems, represented by the American Public Gas Association (APGA), asked both the Department of Energy (DOE) and the Federal Energy Regulatory Commission to look into the then-historically high natural gas prices. The regulators assured us that the market was working its magic and the high prices were just a result of “supply and demand.” When the APGA suggested that market manipulation might be a problem, Congress was busy passing legislation making it easier for Enron to operate without regulatory oversight. APGA allegations proved true in the end, but the belated response by government officials didn’t help customers, who saw massive increases in their monthly gas bills. Even today, with mountains of evidence of misconduct, Congress seems unwilling to pass meaningful legislation to correct the situation.

Public gas systems are now raising the profile of twonew issues that do not bode well for natural gas prices: 1) our nation’s over-reliance on natural gas for electric generation, and 2) DOE’s counterproductive energy efficiency requirements for appliances. With the August recess almost here, Congress still has time to take action on some critical items.

There has been too much emphasis on natural gas for electric generation.Most new electric generation facilities added to the grid since 1998 are fueled by natural gas. This over-reliance by the power industry on natural gas is certain to drive up prices. Federal Reserve Chairman Alan Greenspan testified earlier this month that there is a clear and direct link between increased demand for natural gas and the price of the commodity. Congress must address the relationship between gas prices and the increasing dependence of electric generators on natural gas to fuel new generation facilities. This policy must recognize that our nation’s future electricity needs cannot be met almost exclusively with natural gas, but rather with a reasonable and workable combination of conservation efforts, renewable energy, clean coal technology and safe nuclear power.

DOE’s appliance efficiency proposals discourage the use of natural gas. Congress also needs to address its counterproductive energy efficiency programs for appliances, which have driven builders and homeowners away from natural gas appliances. Even though natural gas appliances consume less source energy and cause fewer emissions than the generation of the electricity needed to run a similar electric appliance, DOE’s program ignores the total energy and emissions necessary to operate an appliance and simply fixates on the use of “energy at the outlet.” The efficiency improvements imposed by DOE on gas appliances raise the purchase price of these appliances far beyond that of their electric counterparts.

As a result, DOE’s program: (1) has made gas appliances more expensive; (2) has started moving consumers away from natural gas appliances to electric appliances; (3) will result in our nation consuming even greater amounts of natural gas for electric generation; (4) will cause higher levels of emissions; and (5) will cause our nation to make less efficient use of our finite reserves of natural gas.

Congress must ensure that DOE’s appliance efficiency standards will result in the consumption of less source energy and generate lower emissions. Lawmakers must seize this opportunity to reform energy markets to ensure their fairness, transparency and openness in order to provide adequate, reliable and affordable natural gas for American consumers.

Mr. Warrington is chairman of the American Public Gas Association.

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