Sudden extremely cold weather could result in curtailment of interruptible gas service to power generators in New England this winter, creating the potential for an energy emergency in New England, according to an analysis by Cambridge Energy Research Associates (CERA). A repeat of the close call faced by the region during a January 2004 cold snap is not out of the realm of possibility, CERA added.

Voluntary and involuntary reduction in electricity demand (load shedding) could be among actions taken by power system managers to address capacity shortages during an emergency, CERA said in an analysis released Tuesday. The curtailment of gas supplies to power generators would affect most gas-fired power plants in the region where roughly 40% of electric generation capacity is gas-fueled. In the most extreme circumstances this could result in power generation outages of 9,500 MW to 10,400 MW, according to the Independent System Operator of New England (ISO-NE).

In the event of extremely cold weather, gas supplies to power generators could be curtailed if the available gas is redirected to meet residential heating load or if higher prices bid gas away from power generation uses, CERA noted. Outages can also be exacerbated if weather interferes with deliveries of fuel oil. Outages of 9,500 MW to 10,400 MW would bring the region’s power capacity down to between 22,540 MW and 23,440 MW, approximately 3% to 7% below ISO-NE’s high-end demand estimates, in the most extreme outage scenarios. If outages were not as high, power capacity and demand are likely to be in balance.

ISO-NE has forecast a 10% probability that the high-end demand will meet or exceed 24,140 MW from December 2005 through March 2006 and forecasts a 50% chance that demand will exceed 22,830 MW.

The CERA analysis warns that these supply-demand levels raise the possibility of a scenario that could produce a replay of the January 2004 spiraling convergence of natural gas and power prices. CERA noted that at that time a cold snap pushed the overall natural gas pipeline utilization rate to almost 100% and competition between inelastic demand for gas heating and the need for gas to generate power drove Boston gas prices to $56.61 and real time hourly electric power prices reported by ISO-NE to more than $900 per MWh.

The region’s exposure to the risk of another spiraling convergence is the result of the intertwined physical, financial, and operational relationships between its power and natural gas markets, according to CERA. Many New England electric power generators operating gas-fired facilities do not have firm contracts ensuring uninterrupted delivery of gas for the winter, and therefore face the prospect of having fuel supplies curtailed during peak periods.

CERA’s analysis indicates that, in the more extreme weather-gas supply scenarios, even using all the available oil-fired generation would not make-up for the shortfall in gas-fired generation. In addition, power generation from oil-fired units is limited by air pollution restrictions and, although fuel oil supplies are expected to be adequate, extreme winter conditions could hinder delivery of truck-transported fuel oil shipments to some power plants.

ISO-NE, a FERC-certified regional transmission organization (RTO), last month said that even under normal weather conditions, New England’s demand for electricity this winter could surpass the previous winter record established during the cold snap of January 2004. However, unless New England experiences weather conditions similar to those of the 2004 cold snap, the region’s supply of electricity should be adequate to meet projected demand this winter, the grid operator added.

FERC recently issued an order conditionally accepting, subject to further Commission action, a proposal filed by ISO-NE and the New England Power Pool (NEPOOL) Participants Committee aimed at boosting the reliability of New England’s bulk power system operations during the coming winter.

A report issued in November by the New England Energy Alliance (NEEA) concluded that New England faces major near-term challenges in all parts of its energy infrastructure, including natural gas facilities, electric transmission lines and electric power generation. NEEA is a coalition of energy providers, business and trade organizations, labor and others concerned about potential energy shortages and the impact on the region’s economy.

An ISO-NE review of the January 2004 cold snap found no evidence of anti-competitive behavior among power generators during that timeframe’s bitterly cold weather in the region and determined that requests for outages for economic reasons were within established market rules and ultimately had no impact on reliability or real-time prices during the period.

Also in the spring of 2004, FERC’s Office of Market Oversight and Investigations concluded that New England power generators did not break any rules by selling natural gas to local gas utilities rather than using it to produce power during the January 2004 cold snap (see Daily GPI, April 2).

©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.