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Northeast Energy Markets: Windfall or Washout?

Fortnightly Magazine - January 1 2000

The average real economic growth rate for the United States, as measured by real gross state product, was 20.5 percent between 1990 and 1998. Only two states in the Northeast - Vermont and New Hampshire - exceeded this percentage. New York's growth rate was a paltry 12 percent, while growth rates for Rhode Island, Connecticut, Maine, Massachusetts and New Hampshire were near 18 percent. Except for Maine and perhaps Connecticut, economic growth rates in the Northeast United States for the next several years are expected to be much less than the national average.

Since economic and demographic characteristics do not support strong market growth, especially for the residential sector, we next look at the potential for growth in terms of industry targets based on overall industry achievements.

Untapped Potential:

Room for Growth in

Residential Gas Demand

In most parts of the United States, especially where low winter temperatures and high space heating loads prevail, natural gas serves the space heating and water heating needs of a large percentage of the households. And in the Northeast, especially, there is much room for growth before gas market penetration and saturation reach levels observed elsewhere.

Because of its convenient and reliable use, natural gas often has quickly penetrated residential energy markets, especially space heating markets when the needed infrastructure was put in place, even if natural gas was slightly more expensive than the fuel in use for this service. In particular, the number of households, as reported by the U.S. Census Bureau, is highly correlated with the number of natural gas customers in those states that have extensive natural gas systems in place. In such states, the percentage of households that are gas customers, or the penetration, often is near 71 percent, and the percentage of gas customers that are space heating customers, or the saturation, is near 99 percent.[Fn.9]

Table 3 presents results for two targets. These targets represent the additional natural gas volumes in the Northeast that would result from penetration (Target 1) and saturation levels (Target 2) reaching national levels. As shown in the final entry in the table, the additional load from growing the market from the current level of penetration to 71 percent, and from the current level of saturation to 99 percent is 340 trillion Btu, which is about 931 MMcf per day.

To understand this result, first use 83.2 MMBtu per year as an estimate of space heating load per customer.[Fn.10] Then using New York data, simply multiply 4,117,000 customers by 83.2 MMBtu to obtain 342,534 billion Btu of possible space heating load per year. Next multiply this number by 13 percent (99 percent - 86 percent) to get 44,529 billion Btu, an estimate of the additional load from saturation reaching national levels in New York.

For estimating the total load of new customers, first add 30 MMBtu per year, a conservative estimate of non-space heating loads per customer per year, to 83.2 MMBtu. Then simply multiply 6,749 by 113.2 MMBtu and then by 10 percent to get 76,399 billion Btu, an estimate of the additional load from