U.S. Sen. Sheldon Whitehouse (D-R.I.) introduced legislation on Wednesday that calls on the U.S. Department of Energy to study natural gas demand response, and directs federal regulators to develop a pilot program using the latest technology.
While demand response has long been recognized for its use in the electric sector, the idea has so far gained limited traction in the gas industry, despite a few utilities beginning to experiment. Gas demand response could help address constraints when demand spikes, helping stabilize prices and maintain reliability.
According to the U.S. Energy Information Administration, almost 10 million customers participate in electric demand response programs, helping shave nearly 6% off peak electric load in competitive power markets. And bill supporters say preliminary research shows similar results are possible in the gas sector.
“Incentives to use energy more wisely benefit everyone," Whitehouse said in a statement to Utility Dive. "Customers save on energy costs, we get more out of our infrastructure, and less pollution ends up in our atmosphere to drive climate change."
"Utilities are already succeeding with these programs," Whitehouse said. "My new legislation will help spread that success around the country.”
A summary of the bill points to Brattle Group research that modeled the implementation of a hypothetical gas demand response program in New England for space heating, concluding it could save 40 million cubic feet of gas on a peak day — equivalent to 5% of the average power sector demand for gas during the winter months.
Jerry Elmer, a senior attorney at the Conservation Law Foundation, had a hand in shaping the proposed legislation. He calls it a "very desirable bill" likely to withstand any legal challenges.
"I don't know what it's political chances are, but it is excellent public policy, a good idea, and good for the environment and for ratepayers," he told Utility Dive.
What the bill does
To address informational barriers in key areas, the bill calls for DOE to complete within one year a study to quantify the technical potential of gas and energy savings, and the costs and benefits associated with natural gas demand response, according to the bill summary.
The report would describe existing technology that could be used and best practices for gas demand response. It would also collect data on measurement and verification of gas savings from demand response measures, and seek to find ways around cost-prohibitive investments in metering.
The bill also calls on the report to identify "geographic areas that would benefit most from implementing demand response measures for natural gas infrastructure."
"The expectation is the study would show a lot of potential economic benefit and environmental benefits that would then lead to further deployment of demand response in the real world," Elmer said.
The bill would also direct the DOE, through the Federal Energy Regulatory Commission, to establish a pilot program allowing gas utilities, local distribution companies and other stakeholders to participate in a gas demand response pilot. The legislation specifies the program would aim to: reduce the cost of energy, reduce market volatility, increase system reliability and reduce emissions.
"The track record of demand response on the electric side doing those things has been excellent," Elmer said. "This is an effort to jump-start similar kinds of DR on the gas side."
Participating entities would include gas utilities, state regulatory commissions, municipalities, large industrial consumers, retail marketers and third-party efficiency program administrators.
The bill also contains some specifications regarding the pilot's location, calling on the Secretary of Energy to "carry out the pilot program under different scenarios, including in a region that is experiencing fuel shortages or natural gas infrastructure constraints that cause the cost of energy to increase for consumers."
Demand response in the electric sector's wholesale markets stirred up quite a debate a few years ago, ultimately leading to the U.S. Supreme Court upholding FERC's role in regulating demand response resources in wholesale markets.
FERC Order 745, issued in 2011, stipulated that demand response providers must be compensated for reducing electricity load at the same rates as if they met that demand with generated electricity. The order also concluded it was appropriate for regional power grid operators to include demand response in wholesale markets. Elmer said there's no reason the same principles would not hold for gas.
The legislation is fairly open as to how the pilot will be developed or what the final goal may be, but having natural gas demand response in competitive markets is one possible end game.
"We have had no demand response on the gas side and this is a bill designed to correct that problem," Elmer said. "For the purpose of legality, the bill is not subject to challenge under the Natural Gas Act. I think it is perfectly legal," he added.
Current gas demand response efforts
The bill originated organically out of Whitehouse's office, which was examining how to address gas constraints in the Northeast and New England. Officials at FERC, the National Association of Regulatory Utility Commissioners, DOE and National Grid were also consulted in developing the legislation.
National Grid is one of a few utilities that have begun experimenting with the idea. "They have been one of the most active utilities in the space," Navigant analyst Brett Feldman told Utility Dive.
National Grid "was pleased to offer comments during the development of this legislation and looks forward to reviewing the bill’s final language as it works its way through the legislative process," company spokesman Kevin O’Shea said in a statement to Utility Dive.
While "there are not a lot of utilities doing gas DR," Navigant's Feldman said the programs are significantly different from electric. "It is very location-specific since it is not a grid-wide opportunity like [electric] DR, but solving a particular bottleneck."
Last year, National Grid proposed four natural gas demonstrations as part of New York's Reforming the Energy Vision proceeding, to reimagine the state's utility sector. Working with AutoGrid Systems and IPKeys Technologies, the utility rolled out direct load control devices for furnaces, boilers and other gas-fired equipment in facilities, including city agencies, schools and commercial buildings.
Carlos Nouel, vice president of new energy solutions for National Grid, told Utility Dive in December that the utility has been very aggressive with gas energy efficiency, but “similar to the electric side, you start to have some peaking issues."
“Customers are starting to get really creative in ways they can shift their peak," he said. "While the demand for gas is pretty much flat or declining, we do have a lot of customers coming into the system."
Other gas DR programs are being tested. Last year, Southern California Gas unveiled its SoCalGas Advisory Thermostat Program, where customers allow the utility to make minor adjustments to a smart thermostat. And Xcel Energy runs a program for large commercial and industrial gas customers that does not use control equipment but calls on customer curtailment.
The American Gas Association, which represents local distribution companies, declined to comment on the legislation saying it was too early to make an assessment.