US gas utilities are closely watching the way global climate change legislation evolves because it potentially will affect the price of gas supplies.
“More and more electric utilities are using natural gas to generate power, which is a problem for local distribution companies (LDCs),” said American Gas Association Pres. David N. Parker. LDCs don’t benefit, because power generators deal directly with producers. Increased demand simply leads to higher prices for gas utilities, Parker said during an AGA meeting with Washington energy reporters.
The climate change debate indicates more gas use in power generation, 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,” McClanahan said. “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.”
More domestic access
It’s also why AGA and its LDC members would like to see producers get more access to domestic resources. “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 US will need to import more LNG, 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.”
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 said.
Decoupling rates
“We have reduced consumption, but we’re being asked to reduce it more. So we have to decouple prices,” McClanahan said. “We have to get away from our companies’ financial health being tied to the volumes they deliver.” Decoupling is a regulatory step that treats a utility’s recovery of fixed costs separately from volumes delivered.
Looking at proposed legislation, McClanahan expressed concerns. “Cap-and-trade could affect gas consumption. We want to be constructive, but we also are part of the solution,” he said. “We have to work with the policy-makers and have a seat at the table.”
His predecessor as AGA chairman, James T. DeGraffenreidt Jr., chairman and chief executive of WGL Holdings Inc., said gas utilities could address climate change by increasing attention to the proposals’ benefits and detriments to their customers.
