American Gas - October 2012 - (Page 31)

t OCTOBER 2012 AMERICAN GAS EMIN KULIYEV / SHUTTERSTOCK.COM he use of natural gas to generate electricity has grown substantially in recent years and is projected to grow even more, given expectations around natural gas price stability and the shuttering of coal-fired generation due to environmental restrictions. Increased gas demand for power generation, however, has some in the gas industry concerned. When a large gas-fired generator is dispatched to serve electricity needs, the pull on the gas system can be great, causing changes in pipeline pressures and reducing system flexibility to meet other customers’ needs. This concern may increase as gas-fired generation is used more frequently to back up renewable generation. The variability of renewable generation could cause an increase in gas-fired generators cycling on and off, thereby increasing hourly variations in gas use. When gas and electric markets fail to coordinate, the impact can be serious. Unusually cold weather in February 2011 in the Southwest U.S. caused natural gas wells to freeze and production levels to decline during a period of peak demand. According to a Federal Energy Regulatory Commission investigation, the production decline led not only to the loss of gas service to more than 50,000 customers, but also to the loss of electric service to over 4 million customers due to a lack of natural gas to fuel electric generators. While many gas-fired generators have contracted for firm pipeline capacity and gas supplies to meet their needs, others—especially peaking generators—have relied on interruptible capacity and spot market purchases. It may not be economical for a peaking genera- tor to pay for capacity that it will use only part of the year. Moreover, electric market rules in some regions may effectively preclude the generator from recovering the cost of holding firm pipeline capacity. When generators only hold interruptible pipeline capacity, electric system reliability may be reduced. During periods of peak gas demand, there may be little to no interruptible pipeline capacity available to serve generators that have not contracted for their own capacity. The 2011 outage in the Southwest prompted FERC to initiate a proceeding this year to examine how the gas and electric markets can be better coordinated to ensure reliability for customers. More than 80 companies, trade associations, state commissions, regional authorities, industry experts, and other interested parties filed comments in FERC Docket No. AD12-12-000, expressing a wide range of views. In August, FERC held a series of regional technical conferences examining reliability issues and soliciting potential solutions for better coordination between the two markets. The technical conferences revealed significant regional variations in both gas and electricity markets in terms of how the markets are structured, the infrastructure that supports them, and the sense of urgency (or lack thereof) among the market participants that something needs to be done to avoid potential near-term and long-range reliability problems. In New York City, natural gas has long been a principal fuel for electrical generation. The experience of New York utilities, described on the following pages, may contain some useful lessons for others that are learning to coordinate gas and electricity markets. —Andrew Soto 31 http://www.SHUTTERSTOCK.COM

Table of Contents for the Digital Edition of American Gas - October 2012

American Gas - October 2012
Contents
President’s Message
Industry News
In the Know
Safety First
Tech Talk
Keep the Lights On
Buyer’s Guide 2012
Places to Be
Jobline
Advertisers’ Index
Noteworthies
Marketplace
Facts on Gas

American Gas - October 2012