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Electric utilities

Electricity Restructuring and its Impact on the Natural Gas Industry

Strategic Insights

— 2 min read

A major topic of discussion at the Fourth Annual Dept of Energy National Assn of Regulatory Utility Commissioners Natural Gas Conference was the effect of electricity deregulation on the natural gas industry. Conference attendees were divided on whether deregulation would lead to increased or decreased natural gas demand, with some experts predicting a boost in competition among utilities and others warning of potential decreased demand. The impending deregulation of the electricity industry is expected to significantly affect the natural gas industry, with many experts agreeing that electricity restructuring will open up new markets for gas and put it in direct competition with electricity for end-use.

Key Takeaways:

  • There was no consensus among conference attendees on the impact of electricity deregulation on natural gas demand, with some predicting an increase in demand and others warning of a decrease.
  • Deregulation is expected to lead to a significant restructuring of the electricity industry, which will have a major impact on the natural gas industry.
  • The Federal Energy Regulatory Commission (FERC) is expected to issue a generic electricity rule within the next month or two that will be akin to Order 636.
  • Electricity restructuring is expected to open up new markets for gas and put it in direct competition with electricity for end-use.
  • Some experts noted that conventional wisdom among energy analysts is that unbundling and deregulation are leading to more direct competition not only among gas companies but among different types of energy.
  • Gas companies are expected to become energy companies and face increased competition from other energy sources.
  • Some analysts were hesitant to speculate on the impact of electricity restructuring on gas, saying regulators must establish the game before anyone can determine the playing field.
  • Regulators were also hesitant to speculate on the issue, noting that they are not even sure how electricity will be restructured.
  • The city gate gas is getting cheaper while electric bills are increasing, which could be a promising sign for the gas industry.

Some notable speakers at the conference included Donald F. Santa Jr. and William L. Massey of FERC, Vinod K. Dar, chairman of Jefferson Gas Systems Inc. and a senior adviser at RCG/Hagler Bailly Inc., Jeff D. Makholm, vice president of National Economic Research Associates, Holly Keller Koeppel, director of strategic planning and regulatory policy for Consolidated Natural Gas Co., and Oliver G. (Rick) Richard III, chairman and chief executive of New Jersey Resources Corp.

Statistics:

  • Nearly 1,000 state regulators, Department of Energy (DOE) officials, and natural gas industry representatives attended the Fourth Annual DOE/NARUC Natural Gas Conference.
  • FERC's order is due this spring, and the Federal Energy Regulatory Commission is expected to issue a generic electricity rule within the next month or two.
  • Wisconsin and California already have major efforts under way to begin the process of electricity restructuring, with a host of other states close behind.
  • The city gate gas is getting cheaper while electric bills are increasing.

Sources:

  • "NARUC, DOE, Corp Heads Predict Big Changes for Gas Industry" by J. Danis, Fuel and Industrial Equipment News, 1996
  • "Electricity Restructuring: A Threat to Natural Gas" by Vinod K. Dar, Chairman of Jefferson Gas Systems Inc. and senior adviser at RCG/Hagler Bailly Inc.
  • "The Freight Train is Rolling" by Jeff D. Makholm, Vice President of National Economic Research Associates.

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