The staff of the Federal Energy Regulatory Commission (FERC) provided misleading information about inadequate western energy infrastructure and rapid gas demand growth in a recent report that was used in support of Commission orders on California power market design, according to energy consultant James Wilson, principal at LEGC LLC in Washington, DC.

In a new paper, Wilson says the recent reports by FERC staff and Rand Science and Technology both mistakenly predict massive gas demand growth, overlooking some important facts about the impact of new gas-fired power generation in the West, including the likelihood that it will reduce demand because of greater efficiency compared to older existing plants (see Daily GPI, July 18 and July 19).

“What they didn’t look at is how [the new gas-fired generation] fits into the broader market,” Wilson said. “They didn’t look at the fact that as you put these new megawatts out there, they have to go somewhere. They can meet a certain amount of load growth, but after that they are just going to push these inefficient gas-fired plants out and those are mainly located in California and are consuming 30%, 50%, sometimes twice as much as the new plants. So the explosion of gas demand to serve the new plants doesn’t occur because of the offsetting reductions in the inefficient plants.”

The conclusion that infrastructure is inadequate out West was based on the mistaken premise that demand will grow substantially, he said. Both FERC and Rand did not present their own demand forecasts but instead based their analysis on inflated forecasts from other sources.

FERC staff predicts that gas demand will increase 30-140% over the next five years in the West depending on the subregion. Rand sees gas demand growth in California of 18-50% between 2000 and 2010. Wilson said Rand adjusted upward the higher forecast of the Gas Research Institute based on the assumption that GRI failed to take into account additional gas-fired power plants being built. Rand’s lower growth forecast was based on an interpretation of a forecast for the entire Pacific region from the Energy Information Administration’s 2001 Annual Energy Outlook. Rand said the 18% low-growth outlook was consistent with the expectations of the California Energy Commission (CEC) but the CEC’s outlook shows only 11% growth over the period, said Wilson.

“These very high figures for incremental gas demand for electric generation from the FERC staff analysis and Rand study are not supported by internally consistent analysis of [the Western Electricity Coordinating Council],” said Wilson. “Even a much larger rate of electricity demand growth would not support these conclusions and neither study makes a case for such an assumption.”

Wilson said a significant amount of the data FERC staff used was out-of-date proprietary information that contradicted what the North American Electric Reliability Council is expecting in terms of power demand growth.

The FERC and Rand analyses also fail to evaluate alternative assumptions about temperature, hydroelectric generation and other key drivers in forecasting gas demand, he said. They also don’t mention the recent increases in intrastate and interstate pipeline and storage capacity and other improvements that put the market in much better shape to handle demand increases in the future.

Wilson noted that 787 MMcf/d of interstate pipeline capacity serving California was added in 2001-2002 and an additional 986 MMcf/d is expected in 2003. SoCalGas and PG&E are expanding their intrastate pipelines and will have added 624 MMcf/d of capacity by later this year. New California independent storage with 500 MMcf/d of withdrawal capacity became operational in 2001 and an additional 500 MMcf/d is expected in 2003 or 2004.

“Interregional electricity market analysis shows that even with the large amount of anticipated new gas-fired generation, gas demand should not be expected to return to the high levels of 2000-2001 for years under normal conditions,” Wilson said in his paper. “And over the next few years, the faster the new generation is introduced, the lower overall gas demand for electric generation will be as displacement of inefficient gas-fired generation is accelerated.”

For a copy of the paper, contact Wilson at James_Wilson@LECG.com.

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