Northwest Council Keeps Eye on Gas, Low Hydro

Despite strong urging from natural gas distributors, the regional Northwest Power Planning Council in Portland, OR, is expected later this month to draw short of stepping up the region's push for faster natural gas conversions by end-users, letting market forces decide. Meanwhile, the council is keeping a close eye on the extremely low hydro situation, whose impact has been eased by a combination of emergency generation units and shutdown of major industrial plants.

Stakeholders in the four-state Pacific Northwest region have urged that the council keep its existing policy that leaves the choice of conversions to natural gas space and water heating up to consumers, according to Dr. Terry Morlan, the council's demand forecasting manager and an economist.

"We understand the market is not working real well in some cases, so we need to try to encourage changes in the way electricity is priced, so people will get a better idea of what the incremental costs of electricity are," Morlan said last Monday in an interview with NGI. "We'll probably publish some of the analysis we have done on the costs of fuel conversions, and how cost effective it is under certain conditions, to better inform the market.

"Unless we get something startling, our recommendation will be for the council to stay where it has been."

What Morlan calls a "steady conversion to gas" has been ongoing in the Pacific Northwest among homes and small businesses for the past five years, and new homes are almost all going to natural gas for space heating, but many are still using electric water heating.

"Gradually things are moving to reflect more what the relative prices of gas and electricity are," he said. Nevertheless, the increasing volatility of natural gas and electricity wholesale prices in the recent past is prompting Morlan to recommend that the council not to aggressively push conversions. "Now is not the best time for the council to ask everyone to switch to gas."

Morlan did an analysis of the Pacific Northwest's gas infrastructure for power generators just before last winter, concluding that supplies should be adequate, and they have been. He said most of the natural-fired generation in the region has back-up fuel, so in some extreme peak-demand situations, the plants might be off of gas.

"Basically, the pipeline infrastructure has expanded as the demand has, rather than trying to forecast what it will be and build the added capacity," Morlan said. "This is different than what has been done in the electric industry traditionally. The pipeline industry is different with its open seasons to see if anyone is willing to sign up to pay for incremental capacity."

Until the summer of 2000, Morlan said there wasn't a lot of interest in the region. But last year, the pipelines got "a huge response," as people suddenly realized fuel was getting short.

"There was enough response to support these fairly minor expansions (by Northwest Pipeline and PG&E's National Energy Group), plus a pretty good push for larger expansions later. I think the pipeline capacity will come along as the demand increases."

A key, according to Morlan, is that a number of new power plant developers are beginning to step forward and to ask for new capacity where they weren't doing that before the summer of 2000. "The same thing has happened in California," he said.

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.