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Execs Brace for High Gas Prices, Hot Temps, Capitol Hill Inaction

Electricity providers around the country, already feeling the sting of abnormally high natural gas prices, are bracing for prices to climb to even loftier levels next year. At the same time they said they don't anticipate blackouts this summer or Congress passing climate-change legislation.

Pat Vincent-Collawn, president of utilities at PNM, New Mexico's largest electricity and gas provider, said she expects gas prices to average around $11-12/Mcf this year and rise to as much as $14 in 2009. "We've modeled natural gas prices going all the day up to $20," she noted during the RBC Capital Markets Energy Conference in New York City last Monday.

Dynegy CEO Bruce Williamson anticipates that gas prices will average $10-12/Mcf this summer, but they could "soften' to a lower price of $8-9/Mcf during some periods. However, he said he would not be surprised to see gas prices climb to between $15 and $17/Mcf at the end of next winter.

"If gas prices continue to move [up]...renewable resources will become more attractive," said William Rogers, CFO of Sierra Pacific Resources, whose utilities provide electricity and natural gas service to northern Nevada and the Lake Tahoe area of California.

As to whether the power executives anticipate rolling blackouts this summer, Vincent-Collawn quipped, "not in my backyard." Williamson appeared less certain, saying "I hope not." But Rogers said he expects rolling brownouts in select areas based on consumer usage patterns, such as southern California.

Looking to Capitol Hill, the power executives correctly predicted that climate change legislation would not clear Congress this year (see related story). "I think the next administration [will] do something on climate change," but the chance of legislation being passed this year is "pretty low," said Williamson.

He said he hopes the next administration "will come up with something fairly modest and get it on the books...You're going to have to ease this onto the American consumer." Rogers agreed, saying "it's tough to see anything happen this year" with respect to cap-and-trade legislation.

Vincent-Collawn also believes action on climate-change legislation will not come until 2009 or later.

Recent announcements from a series of utilities seeking rate hikes to help cover higher natural gas costs could be a hint of much steeper prices to come for residential customers this winter (see related story).

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