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State Regulators: Driven By Reliability

Can natural gas supply keep up with demand for power?
Fortnightly Magazine - November 2004

retail competition in Kentucky. No legislation promoting retail competition has been introduced in recent years, and we are unaware of any moves to do so in the immediate future.

Kentucky has had in place since 2002 laws regulating the siting of merchant generation facilities. Three such facilities, all using coal as a primary fuel, have been approved since 2002, but none are currently under construction. There are five gas-fired merchant facilities in Kentucky, all built prior to the passage of the siting legislation. Four are operating; the fifth is in non-operational status.

Retail choice for natural gas consumers has been introduced on a trial basis by some utilities in Kentucky. However, these programs have drawn limited interest.

Q: Does Kentucky have in place a quota for renewable energy, and how is it working, or if not, do you expect to implement one?

A: Kentucky has no such quota, and does not expect to implement one. The PSC has encouraged and approved renewable energy projects built by jurisdictional utilities, notably a number of small-capacity generators fueled by methane collected from landfills.

Q: What is the issue of greatest importance to Kentucky?

A: Preservation of Kentucky's low-cost electricity is the state's highest priority. Low-cost electricity is a major element in Kentucky's economic development efforts, both as an incentive in attracting industry and as a factor in ensuring a low cost of living for residents. The Kentucky PSC wants to continue the state's success in providing low-cost electricity while maintaining safe and reliable electric service provided by financially healthy utilities.

Massachusetts: Bay State Thinking

Contemplating Price Volatility

"One issue that was highlighted during this past January was the region's dependency upon natural gas for electricity generation."

Paul G. Afonso , Chairman, Massachusetts Department of Telecommunications and Energy

Q: What is Massachusetts doing to deal with volatility and increases in natural gas prices, as well as predictions of lack of gas supplies?

A: To alleviate the volatility in natural gas prices that we have experienced in New England recently, the department established a policy whereby [LDCs] may use financial risk-management instruments as part of their natural-gas procurement protocol (). Customer participation in LDC hedging programs is voluntary, and the costs associated with such programs are recovered from only the customers who choose to participate in them. The department approves hedging proposals on a case-specific basis to ensure that such proposals do not negatively affect gas unbundling, customer choice, and retail competition in Massachusetts.

To date, the risk-management procurement policy is doing well. For example, the department recently approved a proposal by KeySpan Energy Delivery (KeySpan) wherein the company modified its gas procurement practices to mitigate price volatility for its customers (). Under this program, KeySpan will lock in the price for all of its domestic non-storage gas supplies (equally over the 12-month period). In total, this affects approximately one-third of KeySpan's projected normal winter requirements.

In 2001, in an effort to further deal with the volatility in gas prices, the department amended its regulations to allow gas companies to make interim filings for recovery of gas

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