Even with the increasingly brighter domestic gas supply picture, the spread of natural gas vehicles (NGV) still faces daunting market and regulatory barriers, according to a panel discussion Thursday sponsored by the National Regulatory Research Institute (NRRI). Speakers concentrated on what state regulators "should know and ask."

The driver of the discussion was the assumption that current growing concerns about foreign oil import dependence and climate change have created increased interest in alternative transportation fuels. So, what better time than now for natural gas to rise to fulfill the potential NGV-backers have sought for several decades?

Panel moderator Ken Costello, a principal researcher at NRRI, saw disadvantages for natural gas relative to other clean transportation alternatives, given the challenges it faces in expanding an NGV fueling infrastructure nationally and lowering the price of the NGVs, compared to gasoline-powered vehicles.

"A big unanswered issue is who should pay for conversion more natural gas vehicles," Costello said. Panelist Michele Beck, director of the Utah Office of Consumer Services, reiterated that gas utility customers under no circumstances should subsidize the creation of a NGV market. Costello called NGV technology "underdeveloped."

"I think state regulatory commissions should be very careful about making public interest determinations that include reduced pollutants and improved national security," Beck said. "These are issues best addressed by our elected officials, and they are certainly something that exists on a much larger scale than an individual utility service territory.

"And it is important that any incentives for NGVs come from external forces and not utility rates," she added, noting that her comments shouldn't be construed as her being "negative in any way" toward NGVs.

Qualifying his remarks as his own and not his agency's, Joseph Rogers, an assistant attorney general in Massachusetts' Office of Ratepayer Advocacy, recommended state regulators open generic proceedings to examine the many complex issues and questions tied to natural gas use as a transportation fuel. Rogers cited the rapid development of the Marcellus Shale gas play as having profound changes for the gas industry in the Northeast, and statewide proceedings could take into account rapidly changing developments that could impact the future of the NGV market.

"Here in the Northeast Marcellus Shale gas is really changing the whole market," Rogers said. "In the recent Tennessee Gas Pipeline filing at the Federal Energy Regulatory Commission we see Tennessee redesigning its rates because the day of the long haul [for gas] from the Gulf of Mexico to Boston is over. Because of Marcellus, gas is going the other direction.

"In addition, just about every major gas pipeline company in the Northeast seems to have some type of expansion project in the works. The forecast for cheap natural gas is for the foreseeable future, so if we open a generic investigation, I think the regulators need to focus on removing the market barriers that may impede the development of alternative fuel vehicles."

Like Beck, Rogers said there will be some economic and environmental advantages to NGVs, but gas utility ratepayers should not subsidize the development of the technology. "Whether a substantial NGV market actually develops may depend on the types of technology developed for refueling."

Ray Blatter, a senior regulatory manager with Pacific Gas and Electric Co., said there are some distinct cost differences and pros and cons between whether NGVs use compressed natural gas (CNG) or liquefied natural gas (LNG) technologies.

"One advantage to LNG is you can get a lot more in a tank, giving the vehicles a longer range," Blatter said. "The cost of liquefying gas, however, is considerably higher than the cost of CNG, compressing it. My understanding is that for standard around-town use, the CNG option is really the predominant one. It is much easier to provide CNG fueling facilities. The types of applications that would be more suitable to LNG would be long-haul trucking, for example."

Costello said to the extent that wholesale gas prices stay low, NGVs will be more competitive, however, there is also a potential flip side to that. "Since electric utilities use a lot of natural gas, the lower gas prices could result in lower retail electricity prices, which in turn would increase the competitiveness of electric vehicles relative to NGVs."

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