New England's reliance on natgas for power poses challenges

March 19 Tue Mar 19, 2013 10:49am EDT

March 19 (Reuters) - New England has become dependent on natural gas for more than half of its electric generation over the past decade, creating severe challenges to reliable power system operations, the region's power grid operator said Tuesday.

The primary problem is New England does not have enough natural gas pipeline capacity to bring fuel to the region for both home heating and power generation on the coldest winter days, ISO New England, the region's power grid operator said in a release.

Companies that procure natural gas for heating pay for and receive firm, priority contracts with the pipelines for gas delivery, but this can limit deliveries to some power plants, which typically do not pay for firm service and purchase their fuel using a 'just-in-time' delivery system.

The current design of the wholesale electricity market does not provide adequate incentives for generators to provide power when called on by the ISO during stressed conditions, in particular for gas generators who have not made adequate and reliable arrangements for fuel supply, the ISO said.

"Clearly, this is not a sustainable situation, and we are working closely with our stakeholders to develop a set of solutions," the ISO said.

The ISO issued the release on Tuesday as Gordon van Welie, president and chief executive officer of the ISO, was due to testify at a hearing of the U.S. House of Representatives Energy and Commerce Subcommittee on Energy and Power on the growing use of gas for power production.

Despite the challenges, the ISO said the switch to gas has not been all bad.

The increase in gas usage has brought economic benefits to New England consumers, including lower wholesale electric prices and a significant reduction in pollutant emissions, the ISO said.

HOW TO FIX PROBLEM

As several natural gas companies, including Williams Cos Inc , NiSource Inc and Spectra Energy Corp, look to expand their pipelines in the U.S. Northeast, the ISO has proposed changes to the power market to help fix the gas supply issue.

The ISO in February filed with federal energy regulators for permission to change the timing of the day-ahead energy market so that it more closely aligns with the natural gas market timeline.

The ISO said this will give generators more time to secure fuel from the gas market to meet their obligations in the electricity market, and will provide system operators additional time to call on longer lead time resources such as coal or oil power plants, if needed.

The ISO is also considering changes to its Forward Capacity Market, which pays generators to keep their plants available in future years for reliability reasons, which will create stronger incentives for flexible resources like natural gas generators.

The biggest power companies in New England include units of National Grid Plc, Northeast Utilities, Iberdrola SA, NextEra Energy Inc, Dominion Resources Inc , Entergy Corp, Exelon Corp, NRG Energy Inc and Public Service Enterprise Group Inc.

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