Gas Industry Faces Challenge Serving Winter, Summer Peaks

The winter peak in gas demand has a new rival: summer peak demand. And many market observers are wondering if the two can co-exist. With rapidly increasing gas-fired generation, the industry will be hard pressed to meet traditional loads while serving what once was considered a low priority customer - the power generators.

"I think people are coming to the conclusion that electric generation is not a low priority service," said William Reed, vice president of regulatory affairs for Sempra Energy. "It has been treated as the lowest priority customer on the system for decades."

Industry experts who spoke on the subject in Washington at the National Association of Regulatory Commissioners (NARUC) Winter Meeting agreed that the industry will have difficulty serving a 30 Tcf market in 2015, particularly when 23% of that market is represented by power generation load.

During winter 2000-2001, Reed pointed out that power plants in San Diego operated 37%-60% higher, on average, than the previous two winters, 174 MMcf/d versus 109-127 MMcf/d.

"Gas demand as a whole is growing," said John Orr Jr., director of regulatory affairs for Reliant Energy. "Clearly, pipeline infrastructure is going to have to grow to meet this demand. We are looking for a level playing field. We are willing to pay for additional infrastructure provided that there is a level playing field."

By leveling the field, Orr referred to flexible rates and allowing generators to subscribe for firm service. Orr also said the industry needs convergence of nominations and operations in both markets. "The pipeline world needs to move to the hourly market in some way, shape or form, and the gas market is going to as well" to help convergence along, said Orr.

Orr pointed out that in the near-term electric generators provide a market for excess capacity, but in the long-term interruptible flexibility will be limited, and all industry participants must get together to "address demand growth."

Cuba Wadlington, CEO of Williams Gas Pipeline, agreed and said it is crucial that the industry educate the public on the safeness of pipelines so that companies can build them without the backlash that is so common these days.

"We will not be out of gas and we will not be out of electricity, but we do have to face reality, and reality is we must be able to drill for natural gas in restricted areas around the country to have enough gas for all of our needs," said Wadlington. "We need to significantly increase the infrastructure so we can get the gas from the wellhead to the burner tip, and we need to significantly increase the infrastructure relative to electric and transmission in order to be able to get power from the power plants to the end-user."

Barbara Heffernan, an attorney with Schiff, Hardin & Waite put the situation in layman's terms. She said it is not a question of whether gas will continue to be used for new generation, it's a matter of how to insure that it can be done without compromising reliable natural gas service for the local distribution companies (LDCs).

Alex Steis

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