With the days of $2 natural gas long gone, producers, traders and consumers of energy are more attuned to efficiency, conservation and price risk management than ever before. And so are industry regulators, according to one who spoke with NGI last week.
Donald Mason, a commissioner of the Public Utilities Commission of Ohio, is a member of the natural gas committee of the National Association of Regulatory Utility Commissioners (NARUC). High gas prices, he said, have driven home the need to increase efficiency and create opportunities for demand response by providing real price signals to consumers. “I do think there has been a realization that energy efficiency and demand response and real price signals are needed to help natural gas users better understand the role in the entire marketplace,” he said.
Mason noted that 1999 was when price volatility as we know it today came to the gas industry, “where prices would swing by a dollar or more an Mcf, whereas before you had volatility but it was on a much smaller scale. I think at this point natural gas consumers can more easily read the price signals than they could before.”
Decoupling of local distribution company (LDC) revenues from distribution system throughput is one relatively recent response to growing conservation sparked by higher gas prices (see NGI, Aug. 20), said Mason, noting that there will likely be more decoupling programs in the months ahead. “Decoupling is good for the [local distribution] company, but part of the company’s message to the consumer in order to get decoupling has got to be to encourage them to conserve and use energy efficiently.”
Mason noted a recent speech to consumers in which he told them dialing back a gas water heater from high to medium can yield significant savings. “At today’s prices that means you’re saving $150 a year.”
Upstream from the burnertip the industry has also been evolving, Mason said. Buyers of natural gas, such as LDCs, need to step up to long-term contracts — as urged by FERC Chairman Joseph Kelliher (see NGI, Nov. 12) — to support the liquefied natural gas (LNG) imports as well as the development of domestic supplies, Mason said.
“We believe the more certainty you can place in the marketplace, the better financing terms that companies can get to go out and finance these [infrastructure] construction projects,” Mason said. “Therefore you would have ratepayers benefiting because projects could be put into the ground based on a better cost of money. I’m very pleased that Chairman Kelliher is in agreement, and I thought he would be.”
Two and a half years ago Mason was considered as a Republican appointee to FERC (see NGI, April 11, 2005).
Mason noted that even international suppliers of LNG, such as Trinidad and Tobago and Algeria need to have the security of long-term commitments to develop the infrastructure needed to serve markets such as the United States. “It’s all linked together. To me, the other benefit of long-term contracts is that you create more stability in the marketplace in terms of prices, and we’ve seen what’s happened with Amaranth [Advisors] (see NGI, Nov. 19) and others when you have too much volatility, you allow too much gaming.”
State regulators also are seeing the value of fuel source diversity as gas from the Rocky Mountains and Midcontinent takes a bigger share of eastern market portfolios, Mason said. He noted that regulators will be more open in the future to longer-term contracting of supplies by eastern utilities to support development of more domestic supplies.
And those supplies will be called upon heavily, not just by LDCs but more and more by gas-fired power generators, Mason noted. The regulator expressed some concern that ramping up of more domestic supply and LNG imports will not come in quite enough time to appease near-term growing demand from power generation. “I see growth in electricity generation and dependency on natural gas becoming even greater in the coming years,” he said. “I think long term it is good, but short term the timing hurts the consumer.
“Right now there’s just a timing crisis. As I see commissions in our country turning down various coal generation options, it’s going to create more dependency on natural gas.”
The competition between coal and natural gas for new power generation along with nearly universal concern over global warming has caused the role of state regulators to evolve as well as the industry, Mason pointed out. More frequently than ever, state regulators are being called upon to consider the environmental consequences of power generation and other projects, whereas in the past the majority of state regulation was in pursuit of the least-cost option for consumers.
“I do think that regulators who are making the key decisions on what to permit have to be cognizant of the vested interests that are supporting coal versus the vested interests that are supporting natural gas and assume the role of a referee or a judge and really make the proper long-term decision,” he said. “More regulators are making decisions based on environmental criteria, and the discomfort that many consumers counsels and regulators have is that most of us are not charged with those statutory responsibilities. We are economic regulators and not environmental, but yet the responsibilities of the job do involve us looking at environmental consequences of economic decisions.”
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