To further their pending merger, the Williams Companies Inc. has offered to reduce Transco Energy Co.'s cost of capital via a $950-million shot in the arm. The merger will create the second...
Gas-Power Infrastructure: The Missing Link?
addressed. These issues relate both to the power industry's ability to dictate power generation locations, and to the gas industry being able to meet the power industry's needs in terms of cost, delivery, and supply operation.
1. Alignment and Synchronization of Interests
The regulatory, commercial, and operational aspects of natural gas industry and power industry participants, and their interrelationships, need to be understood and joined to achieve the lowest delivered cost of energy to natural gas and power consumers. This joining may necessitate a coordinated and consistent regulatory framework and jurisdiction between the power and the natural gas industries. For example, gas transmission system transportation rates are designed to provide compensation to the gas companies for the delivery of natural gas, and are not specifically designed to provide compensation to the gas companies for the financial benefits that may be achieved in the market through the elimination of power transmission constraints.
2. Power Generation Developers' Commercial Drivers
The development of power generation is in the hands of private investors and developers whose main considerations are commercial, not the elimination of power transmission constraints. Those commercial aspects relate to the installation and development costs of the generation facility and the anticipated price of the generated power. At the present time, the open access of the power transmission systems allows for competition which, in turn, limits the discretion of the system operator in dictating the locations of needed power generation. Identification of the constraint is usually far down the list of priorities, with the system operator crafting a solution through the use of a gas transmission system. To the extent possible, regional transmission operators should strive to influence and promote commercial incentives that encourage investors and developers to site power generation facilities in locations that can alleviate transmission constraints. These operators should also monitor the electric transmission planning process within the emerging RTOs to ensure that they are aware of opportunities to capitalize on potential solutions to electric transmission constraints.
Because of the similar locations of markets, the gas infrastructure and the gas transmission systems are viable options that can be utilized to help solve transmission constraints of the power industry. Gas system operators should proactively monitor the electric transmission planning process within the emerging RTOs to ensure that they are aware of opportunities to capitalize on potential solutions to electric transmission constraints. In this way the electric and gas service providers can begin to address the regulatory, commercial, and operational aspects and requirements needed to effect the coordination of the two markets.
3. Gas Transmission Operators Pricing of Capacity Issues
In many cases, the development of transportation rates for natural gas pipeline systems are based on the delivery of gas supply to the primary market that the investment was made to serve. Because the capacity of the gas transmission systems exists from the supply area to the market, utilization of that capacity by markets other than the primary market can be detrimental to the cost recovery rate structure of the natural gas pipeline. Therefore, if siting a power generation unit at that point