New Federal Water Infrastructure Funding Mechanism Proposed

May 2012, Vol. 67 No. 5

Federal Energy Regulatory Commission (FERC) policies on pipeline rates built around "firm" capacity may be up for grabs as the Commission wades into the issue of increasing dependence by electric utilities on natural gas. Electric utilities most often depend on cheaper "interruptible" service which can leave them vulnerable during times of peak needs. Those peak needs become more of a concern as generators move toward decommissioning coal-fired units in the face of Environmental Protection Agency restrictions and build new natural gas units, incentivized by the flood of low-cost natural gas from shale that is currently washing over the U.S.

Issues of pipeline rates and supply reliability are coming up at FERC because of a docket that is based on a workshop held last February. Commissioner Philip Moeller is leading the effort to determine what if anything the FERC should do to encourage pipeline/utility integration and assure reliability, the latter issue most recently raised by events during the Southwest cold weather event in early 2011. He was joined by Commissioner Cheryl LaFleur who issued a statement asking for comments on, besides interdependence and reliability issues generally, new pipeline and storage service and pricing structures that might better meet the emerging needs of generators.

There is no question electric utilities have been switching to natural gas over the past decade, a trend that has increased considerably in the last few years. The Edison Electric Institute reports that at the end of 2010, natural gas-fired generators constituted 41 percent of the nation's total electric generation capacity of 1,135 gigawatts (GW).

"A series of Environmental Protection Agency rulemakings is likely to force the replacement of 12,000 MW of coal fired generation in the Midwest ISO footprint in the next few years. This in turn may require the construction of significant infrastructure to bring natural gas supplies to the new generation fleet," says Gregory A. Troxell, assistant general counsel, Midwest Independent Transmission System Operator Inc.

The concerns about fast-increasing utility dependence on natural gas are that there is generally no natural gas storage close to utilities. Therefore, at peak times, mostly during the summer, the utilities have to contract for expensive "interruptible" service at the last moment. They could, of course, contract up front for more expensive "firm" service, but the utilities have nowhere to store the gas they don't use so that it would be available during a summer peak period.