NGSA: Flawed power restructuring could crimp gas demand

Ineffective restructuring of the U.S. electricity industry might hold demand for natural gas well below expected levels, warns Nicholas Bush, president of the Natural Gas Supply Association (NGSA).

Bush last month projected gas demand in 2000 at 24.7 tcf-up 2.6 tcf from the 1996 level. The amount of increase matches the total gas volume that NGSA expects to be available from pipeline projects likely to come on stream during the period from the Outer Continental Shelf and Canada.

But flawed restructuring of the electricity industry could slow or reverse growth of the important market represented by independent power producers (IPPs). Without IPP growth, Bush said, U.S. gas demand might increase by only 2 tcf/year during 1996-2000.

Flawed proposals

The NGSA president faulted provisions in electricity restructuring proposals that would mandate use of renewable sources of energy, apply unequal environmental standards to different power generation fuels, and allow utilities to receive cash windfalls in compensation for assets hurt by deregulation.

Current proposals contain mandates for renewable energy ranging from 4% of total U.S. generating capacity to 20%, Bush noted, saying that each percentage point of mandated use of renewables places at risk 300 bcf/year of natural gas demand.

If Congress requires that 10% of nonhydro generating capacity involve renewable energy, consumer electricity prices would exceed forecast levels by 12% and capacity built to satisfy the requirement would cost at least 66% more per megawatt installed than conventional capacity, Bush said.

He also called for a leveling of the nitrogen-oxide emission rate standard for gas, oil, and coal.

Stranded cost recovery

And he opposes "securitization of stranded cost recovery," in which utilities turn noncompetitive investments into cash.

Stranded costs reflect declines in booked utility asset values that result from competition arising from deregulation. Regulators often allow utilities to recover stranded costs through surcharges in customer rates.

Under securitization of stranded cost recovery, a utility collects its recoverable stranded costs all at once by selling a bond or other financial instrument secured by future surcharge revenues.

The cash can help the utility keep in operation generating capacity that otherwise wouldn't survive competition from nonutility generators, many of which use gas as their primary fuel.

By allowing for securitization of stranded cost recovery, Bush said regulators were "picking winners and losers" in industry restructuring and "skewing the competitive environment."

He called for comprehensive restructuring of the power business at the national level but said he didn't expect Congress to vote on the issue this year.

The Federal Energy Regulatory Commission has provided for open access to electricity transmission service at the wholesale level but left retail issues to the states. Bush said a national power grid can't develop state by state.