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Pipelines to Power Gen: New Pipes Need Firm Contracts

The chief issue facing the electric industry as it seeks to coordinate with interstate natural gas pipelines is how far is it willing to go to ensure the reliability of the power grid, interstate pipeline officials said Friday.

"In our view, they have to make that fundamental decision: how reliable do they want gas-fired generation to be?" said Richard Kruse, vice president of regulatory affairs for Spectra Energy, during a briefing with reporters at the Interstate Natural Gas Association of America's (INGAA) headquarters in Washington, DC. In short, will generators commit to firm contracts if the service requires the construction of new infrastructure?

"If you [generators] want more services -- this is true for LDCs [local distribution companies], this is true for marketers, this is true for anybody -- we have to build [infrastructure]. So what do you want us to build?" he asked. Once decisions on contracting are made, "we can build the infrastructure." Kruse noted that the New England Independent System Operator (ISO) is conducting a survey on how much additional pipeline capacity will be needed to serve the gas-fired power generation market in the region.

Generally "across-the-board the electric market is not stepping up...to contract for the reliability that they seek from these gas-fired generators," Kruse said. "We hear a lot about gas-fired generators being curtailed. More often than not...they were interruptible" customers.

Pipelines have been engaged in "extensive dialogue" with the electric side, and are "open to suggestions," said INGAA President Don Santa. But "we're very cautious about doing anything that undermines that very successful [certificate] model" for approval of new pipeline facilities." Under the existing model, the Federal Energy Regulatory Commission requires that proposed pipeline facilities be subscribed under firm contracts before receiving approval.

While the natural gas industry is "excited about the prospect" of serving the power generation market, the pipeline industry can't create a special service for generators that would put the "costs of it on the backs of local distribution companies and producers," he said.

"We're not faulting generators. The generators are perfectly rational given the situation they are in," Santa said. As it stands now, adding the fixed cost of pipeline capacity to generation would make many generators uncompetitive.

"If I'm an individual generator, why would I do that? So the question is how within the rules for those markets and the rate structures...do you price in or value reliability, either individually or collectively through the ISO or RTO [Regional Transmission Organization] taking capacity," he said. This would allow pipelines to step up to the plate and respond to growing gas demand from generators. It's not that they [generators] wouldn't want to sign. It's that in large measure they can't sign because they're not getting paid enough to cover their costs."

FERC is planning five conferences in August to explore the growing interdependence between the North American natural gas and electricity grids. The conferences are set for Aug. 6 in St. Louis; Aug. 20 in Boston; Aug. 23 in Washington, DC; Aug. 28 in Portland, OR; and Aug. 30 in Washington, DC. The sessions would be accessible through social media, such as Twitter with a conference-specific feed (#FERC-GEC). The technical sessions are labeled as a way to improve coordination of the gas and power markets.

Santa called on FERC to act quickly on the gas-electric coordination issues following the regional technical conferences. "We do think it is important that once the technical conferences are over for the Commission to lay out a path or a framework that gets everybody focused on solving these questions."

The gas and electric industries traditionally have grown up separate from each other. But they are becoming closer, said Kruse. To respond to the needs of power generators in New England, "we have hourly scheduling on Algonquin [Gas Transmission]...We [also] communicate extensively with the New England ISO." He said Spectra's Texas Eastern Transmission and Maritimes & Northeast Pipeline systems also provide hourly scheduling.

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