Natural gas is increasingly becoming the fuel of choice to generate electricity, and gas demand from the power sector is projected to grow substantially given expectations that natural gas prices will remain relatively low and stable and that a significant amount of coal-fired generation may close due to environmental restrictions. The increased use of natural gas to generate electricity, however, has some in the gas industry concerned. When a large gas-fired generator is dispatched to serve electric needs, the pull on the gas system can be great causing changes in pipeline pressures and reducing system flexibility to meet other customers’ needs. While many gas-fired generators have contracted for firm pipeline capacity and gas supplies, others – especially peaking generators – have relied on interruptible capacity and spot market purchases. During periods of peak gas demand, there may be little or no interruptible pipeline capacity available to serve generators that have not contracted for their own capacity, threatening electric reliability. The Federal Energy Regulatory Commission (“FERC”) has initiated a regulatory proceeding and held several regional and national technical conferences to address how the natural gas and electricity markets can be better coordinated to increase reliability for customers.
AGA believes that the overall goal of gas-electric coordination efforts should be to preserve and, where appropriate, enhance reliability for all customers, both natural gas and electric. Natural gas resources in North America are abundant and provide an opportunity for the natural gas industry to solve many of our country’s energy needs, including the direct use of natural gas in homes and businesses, as a feedstock in manufacturing, and as a fuel for electric generation. The key to realizing the full value of natural gas is the continued development of a robust natural gas infrastructure along the entire value chain so that natural gas can be delivered wherever and whenever it is needed to those who value it the most. Accordingly, the increased use of natural gas for electric generation should be accompanied by an appropriate expansion of the natural gas infrastructure needed to meet the needs of all customers on the natural gas system, and the costs of such expansions must be fairly allocated in accordance with the principle that the costs of new infrastructure should be borne by those who caused the costs to be incurred. In that regard, electric market rules should provide adequate incentives, e.g., through appropriate cost-recovery mechanisms, for electric generators to ensure the adequacy and reliability of their fuel supplies. For natural gas-fired generators this may mean firm gas supply contracts, firm transportation capacity on interconnected pipeline(s), storage or other services to balance load variations, dual-fuel capability with on-site alternate fuel storage, or some combination of the above. The adequacy of a generator’s fuel supply should be a factor in considering whether the generator is “reliable” for electric reliability purposes.
For more information, please visit our Natural Gas and Electric Interdependence webpage.
AGA Contact: Andrew Soto, Vice President, Regulatory Affairs (202) 824-7215 | firstname.lastname@example.org