Gas utilities add climate change to supply concerns

US natural gas utilities are closely watching the way global climate change legislation evolves because it potentially will affect the price of supplies.

"More and more electric utilities are using natural gas to generate power, which is a problem for local distribution companies," American Gas Association President David N. Parker said. LDCs don't benefit because power generators deal directly with producers, he explained. Increased demand simply leads to higher prices for gas utilities, he said during AGA's year-end reception for Washington energy reporters on Nov. 30.

The global climate change debate is contributing, added David M. McClanahan, president and chief executive of CenterPoint Energy Inc. in Houston and AGA's 2008 chairman. "The energy industry has gone through a seismic shift. Climate change is coming at us and the country is discussing how it gets and uses its resources," he observed.

"With the first new nuclear plant at least 15 years away, although we're on the cusp of building more, the electric industry is going to use more gas. A 20% increase is likely in the next 15-20 years if it expects to meet its customers' needs. That's going to put more pressure on supplies," McClanahan said.

More domestic access

It's also why AGA and the LDCs which comprise its membership would like to see producers get more access to domestic supplies. "We'd like to see offshore areas on the East Coast open up. We need more access in the Rockies and we need to bring gas down from Alaska," McClanahan said.

The United States will need to import more liquefied natural gas, although competition from other countries could be heavy, he added. "The shale plays in Oklahoma and Arkansas are good news. We're holding our own in production for the first time in decades," he said.

AGA and its members were mildly concerned as 2007 began because Democrats were due to take control of Congress. "The election created a different environment," said Parker. With the year nearly through, it looks as if gas utilities were more successful dealing with regulators, particularly in states, than with federal lawmakers, he indicated.

Decoupling prices

"We have reduced consumption, but we're being asked to reduce it more. So we have to decouple prices. We have to get away from our companies' financial health being tied to the volumes they deliver," McClanahan said. Eleven states have decoupled prices, joined in Arkansas during 2007, he said.

Looking at proposed legislation, McClanahan expressed some concerns. "Cap and trade could affect gas consumption. We want to be constructive, but we also are part of the solution. We have to work with the policymakers and have a seat at the table," he said.

His predecessor as AGA chairman, James T. DeGraffenreidt Jr., chairman and chief executive of WGL Holdings Inc., said that gas utilities could address global climate change by bringing increased attention to various proposals' benefits and detriments for natural gas customers.

Referring to reports that US House Democrats were poised to announce new energy legislation and act on it in the next two weeks, DeGraffenreidt added: "Fasten your seat belts, because anything can happen when Congress starts thinking about its Christmas break."

Contact Nick Snow at nicks@pennwell.com.

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