With both New England’s natural gas and electric systems put to the test during the deep freeze of January 2004, both industries are quickly realizing that better communication is needed because their respective commodities are becoming more entwined.

The severe cold this winter showed that the gas and power sectors need a common “communication protocol,” according to a panel on Tuesday at the winter committee meetings of the National Association of Regulatory Utility Commissioners (NARUC) in Washington, DC.

During the January freeze, New England’s supply and infrastructure for both gas and power were tested to near their breaking point. Despite mid-January record high spot gas prices in response to temperatures cold enough to freeze exposed skin in 15 minutes, New England gas distributors, pipelines, LNG operators and the power grid held the delivery system together without a glitch (see Daily GPI, Jan. 16).

However, the trying situation highlighted a number of energy issues in the region, including the need for new market rules on unit availability, the benefit of having firm rather than interruptible transportation, the intricaces of scheduling and dispatch, the differences between the gas day and the electric day, and the need for communication protocols.

“The specific issues of January 2004 must be resolved, and will involve the good faith cooperative effort of all stakeholders,” said Linda Kelly, commissioner with the Connecticut Department of Public Utility Control and vice chair of NARUC’s gas committee. “The ‘winter of our discontent’ could have been much worse. While there was stress on the system, panic in the air and miscommunication, in the end, all end-users received necessary power.

“We should look on this situation as a dry run, a real live test and an opportunity to acknowledge the things that did work and correct the things that did not.”

Kelly said some of the matters that should be reviewed are market rules (especially if they pertain to economic outages), firm versus interruptible service for electric generators and the impact of capacity planning on both gas and power systems, as well as electric and gas system monitoring. Kelly, hitting on a common topic of the day, listed “communication protocol” as one of the most important issues that need to be resolved.

“These reviews should have the primary goal of ensuring for all customers — electric and gas — safe, secure and reliable delivery of power,” Kelly said.

Stephen Beasley, president of El Paso East, said, “I think you will be surprised at how connected our industries already are. We are going through a radical transformation within the energy industry. We are in the midst of the transformation of becoming a natural gas economy, and that is awkward to say…when you consider that we have always thought ourselves to be a petroleum economy.”

Beasley noted that the passing of the torch to gas from oil follows the well-documented cycle that saw the transition from wood to coal back in the 1700s and 1800s, and from coal to oil during the 1900s. “I would argue that 25 years from today there will be more natural gas consumed on a worldwide basis than petroleum.”

Regarding the relationship between gas and power, Beasley said, “We believe it is logical. We believe it is virtually unstoppable.” He noted that gas has a purpose in electric generation “based on the timing…the siting…the lower capital costs associated with electric generation from gas sources and the environmental advantages. Quite literally, it is the ‘good guy fuel,’ and therefore it’s the basis under which generation’s main source is natural gas.

“Suprisingly, [electric generation] is often the anchor of pipeline expansion projects,” Beasley said. “A lot of people forget that a lot of the Northeast expansions that were created back in the 1980s were based on electric generation.” Another synergy that the El Paso exec pointed out was the fact that transmission lines and pipelines share rights-of-way.

Summing up what New England saw in January 2004, Beasley said, “We had all-time record gas peaks” at least within the local distribution community. He noted that Tennessee Gas Pipeline’s all-time peak occurred in January 2003.

In order to ensure the region has enough gas for demand increases and future crisis situations, Beasley said that El Paso is currently looking at a number of options to fill the need. He listed an expansion of the Distrigas LNG import terminal, the construction of the Freedom Trail pipe loop located in New York and Massachusetts (see Daily GPI, July 8, 2003), the storage and pipe expansion known as ConneXion (see Daily GPI, May 15, 2001) and the Blue Atlantic Pipe (see Daily GPI, April 16, 2003), which would transport up to 1 Bcf/d along a subsea route from the southern coast of Nova Scotia to markets in New York and New Jersey.

“Ultimately, we believe that pipeline capacity is a form of an insurance policy that will manage against pricing volatility and ultimately serve the market,” Beasley said.

Addressing some of the issues facing the power and gas relationship, Gordon Van Welie, president of New England ISO, said, “Electric and gas operating days are not well aligned. In New England, generators have to make commitments in the gas market before knowing whether their offers will clear in the day-ahead electricity market.”

Van Welie also said that there is no cap on the intra-day price of wholesale gas, while the real-time wholesale electricity market has a cap of $1,000/MWh. He added that firm gas capacity has to be secured through long-term firm contracts, noting that the generation capacity market is currently very short-term (monthly auctions) and there is no “obligation to serve” by any wholesale electricity market participant.

“New England’s increased reliance on gas-fired generation has linked the gas and electric markets,” Van Welie said. “This increased reliance on gas has come about in a very short period of time, which is testing market rules and operating procedures. Gas and electric market timelines have implications and risks for reliability and costs. We need to coordinate electricity and gas regulatory policy and market rules. Enhanced communication between the electric and gas industries and their regulators is essential to addressing these issues.”

He noted that the Electric/Gas working group is looking at a number of items, including;

Van Welie said that ISO New England is currently in the process of developing a full report on system and market operations for January’s cold snap.

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