Peter C. Nelson was named president and CEO of California Water Service Co. Nelson also will be a director. He comes from Pacific Gas & Electric Co., where he was v.p.-division operations. He...
Northeast Energy Markets: Windfall or Washout?
Weighing the outlook for new plant investment in gas-fired power and related infrastructure.
The jury is still out on the type and size of additional energy infrastructure desirable in the Northeast United States, but enough data is in to make a few guarded observations.
The situation is fluid. Last June, the Federal Energy Regulatory Commission held a one-day public inquiry into anticipated demand for natural gas in the Northeast United States, eliciting a mixed bag of predictions.[Fn.1] In fact, just a few months before, FERC Commissioner William Massey had expressed confusion with a move by the Maritimes & Northeast Pipeline to downscale its capacity by 20 percent, calling it "counterintuitive."[Fn.2] But then again in late 1998, the FERC had asked the New England Power Pool to file a new plan on transmission access and grid constraints, on finding it unlikely that all new generation projects proposed for the region would actually be built.[Fn.3]
Nevertheless, despite the lack of institutions for a well-integrated power market in the Northeastern United States, the power industry is forging ahead with ambitious plans for new natural gas power generation there.[Fn.4] In this same region, the industry is pushing to build natural gas infrastructure that would serve all sectors on par with corresponding markets in most other parts of the lower-48 states, despite enormous regulatory and political hurdles.[Fn.5]
These efforts offer many riches at first glance, but are still fraught with peril. On the downside, natural gas retailers and wholesalers are losing residential market share relative to their counterparts on the oil side of the energy business. Poor economic and population growth in New York and nearby states has not dissuaded companies from planning huge infrastructure investments there.
On the upside, however, there is great potential for growth for residential gas sales in the Northeast, plus much opportunity in power markets. Many older, less-efficient generating plants should be up for retirement soon, opening a window for new gas-fired generation (and opportunities, perhaps, for distributed generation). Constraints in the region's transmission grid also adds value to gas resources and pipeline capacity.
The data reviewed here should provide not only a background on the situation in Northeast energy markets, but on why developers are even considering all the investment now planned in the region's energy infrastructure. Armed with information, we can snoop around and seek out where the highest returns might be found and whether they are likely to continue.
Residential Gas Demand:
Depressed by Low Fuel Oil Prices
Natural gas distribution companies have not shown much competitive mettle in the last several years in their sales to residential customers, the major natural gas-consuming sector in the Northeast. Natural gas as a percentage of total natural gas and distillate fuel use - the major space heating fuels in the Northeast - declined by 6 percentage points in New York between 1996 and 1998. If the natural gas share had not fallen, gas consumption in New York, which accounts for 66 percent of total residential consumption in this region, would have been 28 billion cubic feet (Bcf), or 77 million cubic