Note:  Ken Lay's comments at the "Governors' Natural Gas Summit:  Responding 
to the Growing Energy Crisis" are quoted in this article.

Industry Fears Consumer Backlash Because of High Prices 

The natural gas industry should be prepared to face customer revolts and 
attempts at price caps, similar to those witnessed this summer in San Diego 
if it's a cold winter and prices continue to hit new highs. That was the 
warning from government and industry representatives at the crisis conference 
held by the Interstate Oil & Gas Compact Commission (IOGCC) yesterday. 

Representatives of producing states and industry speakers were unanimous in 
opposing government intervention to restrain prices, but no one had a ready 
remedy for consumer reaction if they are hit with a double whammy of greater 
energy use at higher prices this winter. One speaker offered a bright spot: 
the industry might emerge relatively unscathed if the winter is moderate. But 
then he added it's not just residential heating bills, but electric bills as 
well that will be impacted by higher natural gas prices. Others pointed out 
that demand and higher prices could spur lawmakers to open more areas to 
drilling and encourage new long lines. 

"Industrial customers have been dealing with high prices for some time, but 
higher bills for residential and small commercial customers are just starting 
to hit the radar screen," Peggy Claytor, purchasing manager for steel-maker 
The Timken Co., told the group of more than 300 from the U.S., Canada and 
Mexico, meeting in Columbus, OH. "We may see protests or proposals or calls 
for price caps this winter." She said she is opposed to caps because they 
fail to solve the underlying problems, and she blamed the "dysfunctional 
electricity grid" in part for aggravating the run-up in natural gas prices. 

Asked whether he expected to see a public outcry from residentials this 
winter, Stephen L. Baum, chairman of Sempra Energy, whose San Diego Gas & 
Electric subsidiary has borne the brunt of the California debacle (and whose 
prices were capped), had a one word answer: "Absolutely." 

Enron Chairman Ken Lay agreed. "If we have a combination of a cold winter 
with high prices, it could send bills up quite substantially. Certainly, 
there could be some reaction." Lay said he expected prices to be high for the 
short to medium term, coming down over next two to three years. "As long as 
regulators leave it alone, this market will come back into balance." Lay 
pointed out that even if prices to consumers hit $8.20/Mcf this winter, it 
would be just equal to the price level, adjusted for inflation, in 1986. 

Even at today's prices, "energy is the best buy there is," Robert Allison, 
Jr., chairman of Anadarko Petroleum, told the group, pointing out how 
consumer prices for other basics such as houses and cars, have increased over 
the past 15 years. The problem with energy prices is they have stayed low for 
so long. 

If the government wants to take action, it should open more public lands to 
drilling, Allison said, estimating there are 213 Tcf of reserves--- or a 
10-year supply --- that are off limits in the lower 48 states. Only portions 
of the Gulf of Mexico and Alaska are effectively open for drilling. "It's up 
to Congress to provide greater access," Allison said. 

Others, including Alaska Gov. Tony Knowles, said government should encourage 
the building of additional pipeline capacity, particularly a new pipeline 
from Alaska. 

Leading off the "Governors' Natural Gas Summit: Responding to the Growing 
Energy Crisis," Daniel Yergin, chairman of Cambridge Energy Research 
Associates, called the current situation a "shock," not a "crisis." A lack of 
reserves would be a crisis, but there are plenty of reserves. It's simply 
that demand has accelerated and bumped up against the "iron law of lead 
times." He said the industry would have to invest more than $500 billion over 
the next ten years, nearly double the level of the 1990s, to keep up with new 
markets. 

Yergin called for the U.S. to coordinate supply development policy with 
Mexico and Canada. "This is not just a U.S. issue. And there will not be just 
U.S. solutions --- there must be a continent-wide response." 

In the meantime, the industry should attempt to cushion the short-term shock 
through consumer education, conservation and low income assistance programs.