The Interstate Natural Gas Association of America said FERC should help determine the amount of firm transportation capacity needed in each region to ensure electric grid reliability and then work with electric regulatory authorities to help power generators and electric utilities obtain the transportation services they need.

At a July 13 news conference, representatives of the U.S. interstate gas pipeline group said communication and adjusting scheduling protocols will help smooth interactions between the electric and gas transportation industries, but they are not enough to ensure gas will always be available to power generators. The pipeline officials observed that the current design of the wholesale electric market rewards generators for having the lowest marginal cost, which acts as a disincentive for generators to sign up for firm transportation. They said FERC should adjust the rules to encourage the electric industry to hold the appropriate amount of pipeline capacity and provide pipelines with a way to recover the costs incurred for building this capacity.

FERC has made improving the ability of the gas and electricity industries to work together a priority. The agency announced a series of five regional technical conferences to discuss the subject. INGAA will have members from each region present at the meetings, and its news conference gave an indication of some of the group's main talking points, including the argument that new pipeline infrastructure will be required to meet the increase in demand brought on by the growing popularity of gas a fuel for power generation.

Spectra Energy Corp Vice President of Regulatory Affairs Richard Kruse said a lack of infrastructure has contributed to power outages, at least in New England, which has been ground zero for gas-electric conflicts in past winters, most notably during a lengthy period of cold temperatures in 2004. Spectra Energy's Algonquin Gas Transmission LLC system serves New England, and the company is attempting to market an Algonquin Incremental Market Project to expand transportation capacity into the area. Kruse cited a Spectra Energy study that showed significant cost savings if the region could decide out how to pay for the infrastructure.

"We provide services on a non-discriminatory basis," Kruse said. "Generally across the board, the electric market is not stepping up ... to contract for the reliability they seek from the gas-fired generators."

Kruse said often when the public hears stories of power generators being "curtailed," the actual problem is service to the generators was interrupted because there was high demand for capacity and the generators had relied on interruptible transportation contracts. Instances of curtailment to firm customers are "very rare," Kruse said.

Noting that pipeline companies need roughly two to three years to build infrastructure, Kruse suggested that generators and electric utilities, after talking with regional planning authorities, go to pipelines early if they expect to need additional pipeline capacity or transportation service.

INGAA President and CEO Don Santa said pipeline companies are glad FERC is leading the discussion. The issues are at the heart of the agency's jurisdiction, and the solutions will demand tough decisions. "They're going to have to break a few eggs to make this omelet," he said.

Gary Sypolt, CEO of Dominion Energy, a segment of Dominion Resources Inc., is the chair of an INGAA board-level task force on the coordination effort between the industries. The nine board members represent companies with pipelines in different parts of the United States, and some companies have both electric and gas operations. He said the five regional conferences are a key focus of the task force, which will provide messages tailored to each region. "I'm excited about the task force and what we can accomplish with it," he said.

Copyright 2012 SNL Financial LC. All Rights Reserved.

(Originally published July 16, 2012, in SNL Daily Gas Report.)