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Santa: Economic Incentive 'Heart of the Problem' in New England

The coordination of natural gas and electricity markets is a regional effort that can't be accomplished by just one side or the other, and it remains unclear who will pay for necessary infrastructure across the region, according to Don Santa, president of the Interstate Natural Gas Association of America (INGAA).

"While there are things that can be done on the gas side, there also need to be some changes on the electric power side," Santa told reporters during a wide-ranging discussion Wednesday in Washington, DC. New England's independent system operator is in the process of proposing a series of reforms (see Daily GPISept. 20May 17March 21Jan. 25), but "we'll withhold judgment on whether that is going to be enough" to create necessary incentives in the region, he said.

One key question still to be answered is what role states should play in gas-electricity coordination efforts, Santa said.

A recent study commissioned by the New England States Committee on Electricity concluded that the region's natural gas infrastructure will be increasingly under pressure from demand growth from the power sector in coming years, with 11 of 14 sub-regions expected to exceed constraint capacity levels on more than 30 days/year under the current infrastructure (see Daily GPISept. 30). A separate study concluded that gas pipelines being built to serve the region will provide significant economic benefits to electricity customers and an additional hypothetical pipeline would provide even greater economic benefits, "but it didn't really get to the issue of how do you pay for it, and who takes responsibility for that," Santa said. "One question in my mind is...to what extent is it incumbent on the states to step up and do some things?"

"As much as it obviously would be in the interest of INGAA's members to build pipes to serve this market, even if you're not looking at pipe as your answer -- even if you're looking at alternative fuels, even if you're looking at LNG [liquefied natural gas] or whatever it may be -- you still need the price impulse there, you still need the economic incentive for somebody to offer the service, and somebody actually willing to pay for it. I think that's at the heart of the problem."

Outside of New England, "there are places where the power industry has stepped up for sponsoring a pipeline, where they felt like 'this is the fuel we want, this is the fuel we need and we want reliable response," said incoming INGAA chairman David Devine, who is president of central regional natural gas pipelines for Kinder Morgan.

Late last year, Florida Power & Light Co. (FPL) put out a request for proposals for construction of a two-segment pipeline to carry natural gas from the Transcontinental Gas Pipe Line (Transco) Station 85 in western Alabama to FPL's Martin County Power Plant in southern Florida (see Daily GPI,Dec. 11, 2012). In July, Spectra Energy Corp. said it would build a 465-mile interstate gas pipeline into the Sunshine State (see Daily GPIJuly 8), and Kinder expressed interest in the project as well (see Daily GPIJan. 18). 

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