Watching Government: Solving gas-electric mismatches

Feb. 4, 2013
It's widely recognized that more natural gas will be used to generate electricity in the US. Accomplishing this won't necessarily be easy, however. The devil, as always, is in the details.

It's widely recognized that more natural gas will be used to generate electricity in the US. Accomplishing this won't necessarily be easy, however. The devil, as always, is in the details.

"There are mismatches," explained Natural Gas Supply Association Pres. Skip Horvath. "Power commitments in the Northeast are for 3 years; gas pipeline contracts are for 15. When a valve is open, gas flows. When a circuit is open, electricity doesn't. We need to identify other mismatches and bring them all into line."

He told OGJ that the Interstate Natural Gas Association of America is having ongoing discussions with independent system operators (ISO) in the Northeast and elsewhere to resolve these differences. NGSA accepted INGAA's invitation to sit in because it wants to ensure gas stays a reliable supplier to this growing market, Horvath said.

"Pipeline capacity is tight in the Northeast," he noted. "That's not happening in other parts of the country. It's very clear the industry needs to solve this service obligation problem."

Discussions between the gas and electric industries are a multiyear effort, according to Joan Dreskin, INGAA's general counsel. "It's ongoing because we believe electric power rules, in these restructured markets, need to be relied on to assure that whatever fuel is used has the necessary firm backup," she said on Jan. 17. "These utilities have many stakeholders, and negotiations can be contentious."

Gas supplies did not become an issue until pipeline capacity became tighter and power generators couldn't rely on interruptible capacity at all times, she told OGJ. "We believe the issue should be framed as ensuring electric reliability," she said.

Problem areas

Dreskin said the problem is bigger in New England and other places where electric service has been unbundled than the US Southeast, where utilities still own generating capacity and can go to state public utility commissions for authorizations.

"We understand why utilities in ISOs don't always want to hold firm generation because they can be hurt by competing generators," she said. "If a power generator wants to rely on gas, we think it's great, but we want to be economically supported as we build out capacity to them."

Dreskin agreed with Horvath's observation that there have been breakthroughs in the discussions. "There's a significantly better dialogue between the gas and electric industries. They never really spoke to each other until a couple of years ago," she said.

"We've established relationships between utilities and producers, and discussed our regulatory requirements versus theirs," Dreskin said. "They're realizing that it's a contracting, and not a gas reliability, issue—and that relying on interruptible capacity won't always be adequate."