Week Ending July 24, 2020

NARUC Speakers Differ on Role of Natural Gas, Market Rules in Cleaner Economy

This Article Appears as Published in Foster Report No 3309

The role of natural gas is critical for power generation today and in the near future, but there are different opinions on how quickly the U.S. economy can rely on cleaner resources and diminish that role as battery storage and other technologies gain prominence.

That was among the takeaways from some of the panelists speaking at the National Association of Regulatory Utility Commissioners (NARUC) summer policy summit, held online July 20 and 21. The meetings wrapped up July 22, with the NARUC board voting on resolutions that deal with utility use of drones beyond visual lines of sight and expanding the Low Income Heating Energy Assistance Program, among other items.

Independent system operators (ISOs), state regulators, consumer advocates, environmental groups and industry participants debated the role of natural gas in the energy transition taking place. Some pointed to renewable natural gas (RNG) and hydrogen being used in the pipeline network and pilot projects to lower the emission footprint of gas supplies, while others asserted that gas market rules need to change to provide even competition with wind and solar power facilities or storage resources.

A panel on natural gas bans was held before the summit officially started, and the three speakers all expressed support for full electrification and transitioning communities off natural gas use entirely. The cost for maintaining and replacing old gas distribution lines and other parts of the gas system will be stranded as consumers prefer electric appliances for different reasons, and planning for the transition is needed, speakers told moderator Andreas Thanos of the Massachusetts Department of Public Utilities.

“It looks to us that electrification is likely the cheapest option” compared with the status quo that has many customers unable to pay gas utility bills right now as maintenance and repair costs climb, said David Kolata, executive director of Citizens Utility Board in Illinois. While gas commodity costs are low, fixed cost charges on gas utility bills to cover maintenance and repairs are around $40/month in Chicago, and it’s only a matter of time before people who can afford to start leaving the gas system, Kolata said.

Kolata and Zeyneb Magavi, co-executive director of Home Energy Efficiency Team (HEET) in Massachusetts said policymakers need to plan and avoid a “death spiral” of customers leaving gas utilities in waves, with smaller numbers of customers paying higher bills to cover escalating costs. Leak repairs and pipe replacement in Boston is expected to cost about $4.4 million/mile over the next five years, with a 40-year amortization. Magavi used the term “triage and transition” to plan for repurposing gas infrastructure to aid electrification that brings down emissions.

Electrification is inevitable as heat pumps come down in cost and improve in efficiency, so it is better to plan for the transition and address equity concerns, added Mark Kresowik, deputy regional director at Sierra Club. Any new spending on the gas distribution system needs to be analyzed to see if it can be avoided to use electricity to meet energy needs instead, Kresowik said.

Central Hudson Gas & Electric Corp. in New York State did that and found it could avoid $1 million in gas repair and replacement costs by electrifying about 20 buildings, Kresowik said. He and the others discussed approaches to have home heating assistance funds used to offset electrification costs and minimize, or eliminate, transition costs for low-income customers.

Planning for strategic electrification in communities and regions, such as GeoMicroDistricts being touted by HEET and others, can repurpose gas infrastructure and avoid the “death spiral” for gas utilities, the speakers said.

A pair of panels later in the NARUC meeting examined the role of natural gas in the clean energy transition. With states moving aggressively on clean energy targets and regulatory policies changing to meet those targets, “natural gas market rules have remained comparatively stagnant,” said Elizabeth Stein, lead counsel in energy transition strategy at Environmental Defense Fund (EDF).

Gas-fired generators benefit from frequent changes in gas flows that are not priced for the flexibility provided by pipelines, which “muddles the market” when storage owners and demand response providers have costs to pay to provide similar services to address the intermittency of wind and solar power projects, Stein said during a July 21 panel.

The proper market design must address the evolving role of gas-fired generators, which currently account for more than 30% generation capacity in some areas and are critical for shoring up the intermittency of cleaner resources, said Stein and Amanda Levin, policy analyst with the Natural Resources Defense Council.

The gas-fired generation fleet will play an important role in the near term of the next five years or so, but it will operate differently and be less of a baseload resource by 2030 as storage and new technologies are deployed, Levin said. By 2040 or 2050, the power grid will operate with 100% clean resources, and just because the transition will take some time does not mean aggressive steps should not be taken now, she said.

A policy debate of “gas versus renewables is a mistake,” said Jackie Roberts, consumer advocate for West Virginia and president of the National Association of State Utility Consumer Advocates. Sounding a theme of “things change,” Roberts said gas’ role as a partner with wind and solar projects will continue until storage or other technologies come along on a large scale. Those technologies could be right around the corner, as it did not take long for the current changes and coal-fired generation to drop from roughly 60% of generation capacity to 20% in some areas, she said.

“We shouldn’t run away from natural gas,” because it is providing great outcomes for consumers in terms of lower costs and environmental benefits, said Todd Snitchler, president and CEO of the Electric Power Supply Association. Engineers can make a power grid compatible with much cleaner resources, but cost will be a factor and regulators should support market designs that are cost effective for consumers, he said.

The competitive market model is working in states where consumers are insulated from investment decisions of generation owners, Snitchler added. Regulators should make sure all resources can compete fairly, and if the operations of the grid change, there might be a need for the pricing of products and services to change as well, he said.

The growth of natural gas use in power generation is well documented, and the ISO representatives from different parts of the country gave their views on the transition to cleaner resources, with time frames that differ slightly. California ISO is farther down that path, with renewables providing as much as 80% of power supplies at certain periods, said Mark Rothleder, vice president of market policy and performance at Cal-ISO. Grid operators need to figure out how to ensure reliability is not harmed as renewable resources are relied upon at those high levels for longer periods of time. “The pattern of gas use is changing,” and gas infrastructure will be used less in the future, he said.

Besides addressing gas infrastructure and cost recovery, policymakers should examine how renewable resources can provide enhanced dispatchability and frequency response to deal with voltage fluctuations and other challenges associated with the cleaner generation resource mix, Rothleder said.

Given the growth of gas-fired generation, “moving away from natural gas will take some time,” and could be a multi-decade process, said Anne George, vice president of external affairs at ISO New England and a former state regulator in Connecticut. States are demanding changes through carbon reduction goals and “it’s our job to maintain reliability as we go through this transition,” George said. Gas-fired generation is the best at balancing the output of renewables right now, and more will be needed in the future, she said.

Like California, the New York ISO covers an individual state that gives it some policy certainty to address, compared with PJM Interconnection or the Midcontinent ISO that have multiple states and different energy policies, other speakers noted. In New York, “natural gas is going to be critical” to help the state meet its carbon reduction goals, said Richard Dewey, president and CEO of New York ISO. Even with the gains in renewable resources, storage and other technologies, “we’ve got a long way to go” to reach the carbon-free future laid out in state policies, Dewey said.

PJM covers states with fewer renewable resources than others on the panel, but the decarbonization trend is accelerating and the generation interconnection queue reflects that, said Manu Asthana, president and CEO of PJM. Gas-fired generation reached about 37% in PJM in 2019, from about 6% in 2005, so the energy transition has been taking place for some time, with emission reductions and penetration of storage expected to continue, Asthana said.

Some PJM states are farther along in the clean energy transition, and Asthana believes challenges can be addressed if reliability is the focus and policies are well planned. “Don’t let the great be the enemy of the good,” he advised.

By Tom Tiernan ttiernan@fosterreport.com

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