Commissioner doesn't foresee repeat of last winter's gas prices

Thursday, July 12, 2001

by: Shari Mann

Commissioner Lavenski "Vince" Smith, of the Arkansas Public Service Commission, spoke to the Poinsett County Quorum Court Monday, July 2, as part of the Utilities Division's effort to increase awareness of current utility issues and their effect on utility customers.

As far as utilities are concerned for most of us, if the light comes on when we flip the switch and it doesn't cost too much, we're happy. But this past winter brought lots of attention to the subject of public utilities, as natural gas prices soared to incredible heights.

Smith described the factors involved in that phenomenon, and gave assurances that next winter's prices should not repeat last year's.

"This past winter there was nobody in the country that had a lower natural gas bill than Arkansas residents," stated Commissioner Smith. "This past year was an unusual year, one that we hope won't be repeated."

He explained that last winter's situation was a coming together of several events - the cost of the natural gas (most of which is deregulation at the federal level), an exceedingly high demand, and a very cold winter.

The cost of the gas itself has risen, Smith said, from just under $2 per MBTU in 1998 to over $8 per MBTU in 2001. Distributors must pass this cost increase to their customers, with no increase in their own profits. Utility companies make their money on the distribution of gas, which is where the commission can get involved.

Putting caps on the consumer's final cost is not a solution, he said, as distributors cannot survive if they are unable to make a profit between the cost of gas and the price they are allowed to sell it.

Smith said the wellhead price of natural gas has "dropped to half of what it was six months ago," and storage of natural gas across the state is going well, which are good indicators for keeping the coming winter's prices steady. Consumer costs may increase as the winter's demand rises, but he does not anticipate the cost rocketing we experienced last year.

The responsibility of his division, he explained, is to ensure that public utilities are delivered to consumers in a manner that is reliable, safe and affordable. The commission realizes that today's public utilities - electricity, natural gas and telecommunications - are no longer a convenience but a necessity of everyday life.

This year they are involved in a public awareness project, as the quality of service and utility rates affect economic development and the quality of life in our state. The everyday consumer's involvement may become more than just flipping on the switch and paying the single utility bill when it arrives. We may be offered an array of choices, similar to telephone service.

Providing electricity to consumers is a three-stage process, Smith explained: initial power generation, transmission to a general area, and distribution to the users. All three stages are typically done by one monopolistic company.

States across the U.S. are now experimenting with the idea of different companies providing the various stages, as well as allowing private companies to compete for consumers' business. The telecommunications sector has already re-organized in this manner, as companies compete for local, long distance and wireless telephone service, and various cable and satellite communications are available for the choosing.

Arkansas' future in power production includes some new ideas - smaller, privately owned, independent power plants, which are not regulated by the commission; more nuclear power generation, in addition to the two plants in the state; and localized generation, which he described as a refrigerator-sized production unit, that could power an entire apartment complex, for example.

"We want to have a very diversified power generation portfolio," added Smith, which includes cola, hydroelectric and natural gas production, as well as the more futuristic projects. Again, he reassured the court members that Arkansas is not expecting any more problems with power supply like California has had.

In 1999 the state legislature passed Act 1556, authorizing the Public Service Commission to explore the idea of differing companies competing for utility customers, and if such diversification would be to the benefit of customers. About half of the states are looking into this idea, Smith said, and Arkansas is watching others, such as California, Texas, Pennsylvania and Maine carefully.

"Prudence dictates cautious progress," admonished Smith, as he described Arkansas' approach to diversification of utilities. He said they will not develop their recommendation to the state legislators based on "a hope and a wish" that lower costs and improvement of services will result. The commission's decision will be well considered, said Smith, when it is delivered at the next legislative session.

Smith's immediate advice to consumers is to start winterizing their homes now for the coming season. Keeping utility demand low is a big factor in lower costs.

Bill Dennis, Community and Rural Liaison for the Public Service Commission, was also present at the Quorum Court meeting. He encourages customers to contact the Public Service Commission if they have any questions about utility service, by calling 1-800-482-1164, or visiting their website at

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