blog icon

Energy Currents
A Blog by Enerdynamics

While Much Focus Is on Electricity, Natural Gas Utilities Are Also in Transition

by Bob Shively, Enerdynamics President and Lead Facilitator

Renewables, batteries, distributed energy, electrification, and electric vehicles—it seems most of the energy news today is about transition in the electric industry. If we turn to the natural gas industry, most coverage centers on liquified natural gas (LNG) or volatile wholesale natural gas prices. The important gas utility business seems left out of the discussion. But as residential customers replace gas furnaces with electric heat pumps, regulators and customers insist on decarbonization progress, and industrial customers look at electrification strategies to reduce emissions, gas utilities are undergoing a major transition, too. 

Gas utilities face significant challenges moving forward. These include:

  • Loss of load due to customers swapping out gas appliances for electric alternatives
  • New construction of all-electric homes in regions traditionally using natural gas
  • New regulations requiring progress toward decarbonization of energy supply
  • For utilities that service electric generation, the loss of load due to wind and solar growth
  • The need for increased spending capital and expense dollars to ensure safe and reliable operations given aging infrastructure and increasing safety-related regulations

The result is higher costs and declining usage. This causes a rate hike, which further encourages customers to look for natural gas alternatives. 

Planning Through Uncertain Changes

Success through the transition requires new planning paradigms. A recent study by consulting company Strategen, commissioned by the clean energy business organization Advanced Energy United and titled A Regulator’s Blueprint for 21st Century Gas Utility Planning, laid out a suggested methodology followed by examples from various gas utilities.

The paper identifies an analytical process that provides the utility, regulators, and key stakeholders with information necessary to develop an optimal plan that balances cost with safety and reliability risks. The analysis includes:

  1. Load forecasting
    The utility develops a load forecast that includes overall throughput and peak demand. The forecast includes specific “design day” criteria used for peak demand plus assumptions used in developing throughput. Since developments such as electrification may occur at different speeds in different regions on the system, breaking forecasts in local zones may be required. Given the uncertainty of future demand, various scenarios are developed.
  2. Planned capital spending
    The utility identifies capital investments required to maintain safety and reliability over a short-term time frame of around five years given the primary scenario.
  3. Evaluation of alternatives
    The utility evaluates alternatives to each proposed capital investment. Possible lower-cost solutions may include demand-side solutions like targeted demand response, targeted energy efficiency, or targeted electrification. Or it may include other fuel-switching and supply-side solutions such as on-system renewable natural gas, on-system liquefied natural gas (LNG) peaking storage, and compressed or LNG trucking to serve peak loads.
  4. Identification of the preferred plan
    The utility selects the plan components that best balance cost and risk considerations. This becomes the preferred plan.
  5. Bill impact analysis
    The utility then analyzes how proposed spending on capital and expense items reflected in the preferred plan will impact customer bills. This may include an equity analysis that looks at the impact on various segments of utility customers.
  6. Additional analysis
    The utility may also need to evaluate how its planning interacts with electric utility plans so regulators and stakeholders can evaluate whether the gas and electric plans reflect a similar vision or may be working to counter purposes. The utility may also need to do a geographical analysis to determine whether all regions or communities are being treated equitably.

The Result of Planning

With a careful planning process, gas utilities can identify optimal ways to move forward through potential loss of traditional loads and increasing costs. The ideal solution provides low risk of safety or reliability issues with the least possible negative impacts on customers. Strategies utilities may implement include:

  1. Designing facilities for future load reductions as opposed to assuming future load growth
  2. Developing programs to foster non-pipeline alternatives such as targeting demand-side-management, energy efficiency, or provision of alternate fuels in lieu of building out gas infrastructure
  3. Working with regulators and customers to identify strategic locations for service abandonment (replacing gas service with alternate fuels or electrification in areas where the cost of service is especially high)
  4. Preparing for future low-carbon fuel sources such a renewable natural gas and hydrogen

While such strategies fly in the face of traditional planning built around the assumption of continued load growth, gas utilities must learn new ways of thinking about their role in society’s ongoing need for energy resources.

Back to Energy Currents blog

Natural Gas Utility ,