If convergence is what’s driving the energy industry, thenNiSource Chairman Gary Neale could be a good candidate to pilot theAmerican Gas Association into the new millennium. Neale is theAGA’s new chairman, but he’s also chairman of National ElectricityReliability Council, is on the board of directors of EdisonElectric Institute and spends his spare time attempting a hostiletakeover of Columbia Energy Group.

Although he touched on many topics yesterday speaking at theNatural Gas Roundtable in Washington, D.C., Neale could not stressenough the speed at which the electric and gas industries will cometogether and focus on distributed generation over the next fewyears.

“The fastest selling item that we have in our electric serviceterritory today is home generators supplied by natural gas,” hesaid. “They come on automatically within a microsecond after youlose power. People are spending $9,000 and $10,000 for these unitsas a back-up to their local electric system. Well, for a fewthousand dollars more, even at today’s prices, they could have amicroturbine or a combination of fuel cells right now at their homeand use their electric company as their back-up. That’s a bigchange.

“We plan on putting out fuel cells on a demo basis in the nextsix months. I think you are talking about two years out [for themto reach the mass market]. The breakthrough in the fuel cell areais in the cost of producing the plates and we now see that theseplates can be molded and produced at a much cheaper price.Reformers are out there so we can convert natural gas to hydrogenwith the byproducts being only CO2 and water. I think we’re talkingabout a lot of testing in this next year, and I think you are goingto see commercial production in 2001.”

Neale is very bullish on distributed power for several reasons.The clearest rationale is that it gives people a choice. They cangenerate their own power, their own heat and can ensure thereliability of their own energy.

“What we’re saying to the customer now is ‘you can have a totaldifferent approach, and that different approach will mean thatyou’ll draw gas through your pipeline.’ Given that choice, we thinkthe customers will move to distributed generation as technologyimproves. Why? First of all it’s going to be very efficient… Itcan be competitively priced. We’re finally seeing somebreakthroughs now in fuel cell technology… The money is coming topull the components together to make it work for the marketplace.It’s environmentally clean. We don’t have any choice. That’s whereit’s going to go, and I say that as somebody who’s involved inowning a lot of coal plants that produce electricity. I don’t thinkthey have a long-term future.

“Last but not least is the issue of reliability. Customers, ifgiven a choice, want reliability. They don’t believe their electricsupplier is reliable…because every time there’s a storm they losepower and they lose their data files and they lose their ability todo online computing. The average customer is becoming so dependenton reliable electricity in their home, their small business,wherever. We talked about demand for electricity…but there’sanother demand curve called the demand for reliability and becauseof that we are going to see lots of people investing in distributedgeneration.”

He said AGA’s role in this is to help shift the government’sfocus from imposing limitations and environmental restrictions toseeing and promoting the advantages of distributed generation. Healso said AGA would work with the Department of Energy and othergovernment agencies to “standardize the criteria for connectingtechnologies to the electric grid. We can’t live with 50 differentways of connecting to the grid. People who are manufacturing theseunits won’t do it if they have 50 different ways of linking to thegrid.”

Neale said FERC needs to work to “help create a rationale forinvestment” in distributed generation “so we don’t need an increasein transmission. We are not going to be able to build all thosewires, the amount of transmission we need, so we need to build onthe back side of the transmission in the form of distributedgeneration. And we need to make sure that the local utilities thatare involved in this get a fair return because it’s not alwayssupplying the gas; it’s supplying the equipment and servicing theequipment and so on.”

Despite the convergence theme of the Roundtable lunch, AGAPresident David Parker stood up to “put to rest the rumors” thatthe AGA and EEI are discussing a merger. He said the internalorganization structures of the two associations would discourage amerger. The separation within AGA organization of production,transmission and distribution contrasts with EEI’s internalstructure. He also stressed the two associations keep in closecontact and coordinate on issues. It’s not in AGA’s plans currentlybut it “may be sometime in the future..,” he added.

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