ENERGY MANAGEMENT HANDBOOKS phần 7 pdf

544 ENERGY MANAGEMENT HANDBOOK

1990. The Energy Policy Act of 1992 revised and further

increased the excise tax effective January 1, 1993.

Another factor to consider in ASHRAE Guidelines

3-1990—Reducing Emission of Fully Halogenated Chlo￾rofl uorocarbon (CFC) Refrigerants in Refrigeration and

Air-Conditioning Equipment and Applications:

The purpose of this guideline is to recom￾mend practices and procedures that will reduce

inadvertent release of fully halogenated chlorofl u￾orocarbon (CFC) refrigerants during manufacture,

installation, testing, operation, maintenance, and

disposal of refrigeration and air-conditioning

equipment and systems.

The guideline is divided into 13 sections. High￾lights are as follows:

The Design Section deals with air-condition￾ing and refrigeration systems and components and

identifies possible sources of loss of refrigerants to

atmosphere. Another section outlines refrigerant re￾covery reuse and disposal. The Alternative Refrigerant

section discusses replacing R11, R12, R113, R114, R115

and azeotropic mixtures R500 and R502 with HCFCs

such as R22.

20.7 REGULATORY AND LEGISLATIVE

ISSUES IMPACTING AIR QUALITY

20.7.1 Clean Air Act Amendment

On November 15, 1990, the new Clean Air Act

(CAA) was signed by President Bush. The legisla￾tion includes a section entitled Stratospheric Ozone

Protection (Title VI). This section contains extraordi￾narily comprehensive regulations for the production

and use of CFCs, halons, carbon tetrachloride, methyl

chloroform, and HCFC and HFC substitutes. These

regulations will be phased in over the next 40 years,

and they will impact every industry that currently uses

CFCs.

The seriousness of the ozone depletion is such

that as new fi ndings are obtained, there is tremendous

political and scientifi c pressure placed on CFC end-us￾ers to phase out use of CFCs. This has resulted in the

U.S., under the signature of President Bush in February

1992, to have accelerated the phaseout of CFCs.

20.7.2 Kyoto Protocol

The United States ratified the United Nations’

Framework Convention on Climate Change, which

is also known as the Climate Change Convention, on

December, 4, 1992. The treaty is the fi rst binding inter￾national legal instrument to deal directly with climate

change. The goal is to stabilize green house gases in

the atmosphere that would prevent human impact

on global climate change, The nations that signed the

treaty come together to make decisions at meetings call

Conferences of the Parties. The 38 parties are grouped

into two groups, developed industrialized nations

(Annex I countries) and developing countries (Annex

11). The Kyoto Protocol, an international agreement

reached in Kyoto in 1997 by the third Conference of

the Parties (COP-3), aims to lower emissions from two

groups of three greenhouse gases: Carbon dioxide,

methane, and nitrous oxide and the second group of

hydrofluorocarbon (HFCs), sulfur hexafluoride and

perfl uorocarbons. Emissions are meant to be reduced

and limited to levels found in 1990 or 1995, depend￾ing upon the gases considered. The requirements will

impact future clean air amendments, particularly for

point sources. These requirements will further impact

the implementation of distributed generation sources,

which are discussed in the following section.

Table 20.1 Candidate Alternatives for CFCs in Existing Cooling Systems

———————————————————————————————————————————————————

CFC Alternative Potential Retrofi t Applications

CFC-11 HCFC-123 Water and brine chillers; process cooling

CFC-12 HFC-134a or Auto air conditioning; medium temperature commercial food

Ternary display and transportation equipment; refrigerators/freezers;

Blends dehumidifi ers; ice makers; water fountains

CFC-114 HCFC-124 Water and brine chillers

R-502 HFC-125 Low-temperature commercial food equipment

———————————————————————————————————————————————————

CODES, STANDARDS & LEGISLATION 545

20.8 REGULATORY AND LEGISLATIVE ISSUES

IMPACTING COGENERATION &

INDEPENDENT POWER PRODUCTION2

Federal, state and local regulations must be ad￾dressed when considering any cogeneration project.

This section will provide an overview of the federal

regulations that have the most signifi cant impact on

cogeneration facilities.

20.8.1 Federal Power Act

The Federal Power Act asserts the federal

government’s policy toward competition and anti￾competitive activities in the electric power industry.

It identifi es the Federal Energy Regulatory Commis￾sion (FERC) as the agency with primary jurisdiction

to prevent undesirable anti-competitive behavior with

respect to electric power generation. Also, it provides

cogenerators and small power producers with a ju￾dicial means to overcome obstacles put in place by

electric utilities.

20.8.2 Public Utility Regulatory Policies Act (PURPA)

This legislation was part of the 1978 National

Energy Act and has had perhaps the most signifi cant

effect on the development of cogeneration and other

forms of alternative energy production in the past

decade. Certain provisions of PURPA also apply to

the exchange of electric power between utilities and

cogenerators.

PURPA provides a number of benefi ts to those

cogenerators who can become Qualifying Facilities

(QFs) under the act. Specifi cally, PURPA

• Requires utilities to purchase the power made avail￾able by cogenerators at reasonable buy-back rates.

These rates are typically based on the utilities’ cost.

• Guarantees the cogenerator or small power producer

interconnection with the electric grid and the avail￾ability of backup service from the utility.

• Dictates that supplemental power requirements of

cogenerator must be provided at a reasonable cost.

• Exempts cogenerators and small power producers

from federal and state utility regulations and associ￾ated reporting requirements of these bodies.

In order to assure a facility the benefits of

PURPA, a cogenerator must become a Qualifying

Facility. To achieve Qualifying Status, a cogenerator

must generate electricity and useful thermal energy

from a single fuel source. In addition, a cogeneration

facility must be less than 50% owned by an electric

utility or an electric utility holding company. Finally,

the plant must meet the minimum annual operating

effi ciency standard established by FERC when using

oil or natural gas as the principal fuel source. The

standard is that the useful electric power output plus

one half of the useful thermal output of the facility

must be no less than 42.5% of the total oil or natural

gas energy input. The minimum effi ciency standard

increases to 45% if the useful thermal energy is less

than 15% of the total energy output of the plant.

20.8.3 Natural Gas Policy Act (NGPA)

The major objective of this legislation was to

create a deregulated national market for natural gas.

It provides for incremental pricing of higher cost

natural gas supplies to industrial customers who use

gas, and it allows the cost of natural gas to fl uctuate

with the cost of fuel oil. Cogenerators classifi ed as

Qualifying Facilities under PURPA are exempt from

the incremental pricing schedule established for in￾dustrial customers.

20.8.4 Resource Conservation and

Recovery Act of 1976 (RCRA)

This act requires that disposal of non-hazardous

solid waste be handled in a sanitary landfi ll instead

of an open dump. It affects only cogenerators with

biomass and coal-fired plants. This legislation has

had little, if any, impact on oil and natural gas co￾generation projects.

20.8.5 Public Utility Holding Company Act of 1935

The Public Utility Holding Company Act of

1935 (the 35 Act) authorizes the Securities and Ex￾change Commission (SEC) to regulate certain utility

“holding companies” and their subsidiaries in a wide

range of corporate transactions.

The Energy Policy Act of 1992 creates a new

class of wholesale-only electric generators—“ exempt

wholesale generators” (EWGs)—which are exempt

from the Public Utility Holding Company Act (PUH￾CA). The Act dramatically enhances competition in

U.S. wholesale electric generation markets, including

broader participation by subsidiaries of electric utili￾ties and holding companies. It also opens up foreign

markets by exempting companies from PUHCA with

respect to retail sales as well as wholesale sales. 2Source: Georgia Cogeneration Handbook, published by the Governor’s

Offi ce of Energy Resources.

546 ENERGY MANAGEMENT HANDBOOK

20.8.6 Moving towards a deregulated

electric power marketplace

EPACT-1992 set into motion a widespread

movement for utilities to become more competitive.

Retail wheeling proposals were set into motion in

states such as California, Wisconsin, Michigan, New

Mexico, Illinois and New Jersey. There are many is￾sues involved in a deregulated power marketplace

and public service commission rulings and litigation

will certainly play a major role in the power market￾place of the future. Deregulation has already brought

about several important developments:

• Utilities will need to become more competitive.

Downsizing and minimization of costs including

elimination of rebates are the current trend. This

translates into lower costs for consumers. For

example Southern California Edison announced

that the system average price will be reduced

from 10.7 cents/kWh to lower than 10 cents by

the year 2000. This would be a 25% reduction

after adjusting for infl ation.

• Utilities will merge to gain a bigger market

share. For example, Wisconsin Electric Power

Company merged with Northern States Power;

this merger of two utilities resulted in a savings

of $2 billion over 10 years.

• Utilities are forming new companies to broaden

their services. Energy service companies, fi nancial

loan programs and purchasing of related compa￾nies are all part of the new utility strategy.

• In 1995 one hundred power marketing compa￾nies have submitted applicants to FERC. Power

marketing companies will play a key role in

brokering power between end users and utili￾ties in different states and in purchasing of new

power generation facilities.

• Utilities will need to restructure to take ad￾vantage of deregulation. Generation Companies

may be split away from other operating divi￾sions such as transmission and distribution.

Vertical disintegration will be part of the new

utility structure.

• Utilities will weigh the cost of repowering and

upgrading existing plants against purchasing

power from a third party.

Chapter 24 discusses many more issues on the

topic of electrical deregulation.

20.9 OPPORTUNITIES IN THE SPOT MARKET3

Basics of the Spot Market

A whole new method of contracting has emerged

in the natural gas industry through the spot market.

The market has developed because the Natural Gas

Policy Act of 1978 (NGPA) guaranteed some rights

for end-users and marketers in the purchasing and

transporting of natural gas. It also put natural gas

supplies into a more competitive position with de￾regulation of several categories.

The Federal Energy Regulatory Commission

(FERC) provided additional rulings that facilitated

the growth of the spot market. These rulings in￾cluded provisions for the Special Marketing Programs

in 1983 (Order 2346) and Order 436 in 1985, which

encouraged the natural gas pipelines to transport gas

for end-users through blanket certifi cates.

The change in the structure of markets in the

natural gas industry has been immense in terms of

both volumes and the participants in the market. By

year-end 1986, almost 40% of the interstate gas sup￾ply was being transported on a carriage basis. Not

only were end-users participating in contract car￾riage, but local distribution companies (LDCs) were

accounting for about one half of the spot volumes on

interstate pipelines.

The “spot market” or “direct purchase” market

refers to the purchase of gas supplies directly from the

producer by a marketer, end-user or LDC. (The term

“spot gas” is often used synonymously with “best ef￾forts gas,” “interruptible gas,” “direct purchase gas”

and “self-help gas.”) This type of arrangement cannot

be called new because the pipelines have always sold

some supplies directly to end-users.

The new market differs from the past arrange￾ments in terms of the frequency in contracting and

the volumes involved in such contracts. Another

characteristic of the spot market is that contracts

are short-term, usually only 30 days, and on an

interruptible basis. The interruptible nature of spot

market supplies is an important key to understand￾ing the operation of the spot market and the costs

of dealing in it. On both the production and trans￾portation sides, all activities in transportation or

purchasing supplies are on a “best efforts” basis.

This means that when a cold snap comes the direct

purchaser may not get delivery on his contracts

because of producer shutdowns, pipeline capacity

and operational problems or a combination of these

problems. The “best efforts” approach to dealing

can also lead to problems in transporting supplies

CODES, STANDARDS & LEGISLATION 547

when demand is high and capacity limited.

FERC’s Order No. 436

The impetus for interstate pipeline carriage came

with FERC’s Order No. 436, later slightly changed

and renumbered No. 500, which provided more fl ex￾ibility in pricing and transporting natural gas. In

passing the 1986 ruling, FERC was attempting to get

out of the day-to-day operations of the market and

into more generic rule making. More significantly,

FERC was trying to get interstate pipelines out of the

merchant business into the transportation business—a

step requiring a major restructuring of contracting in

the gas industry.

FERC has expressed an intent to create a more

competitive market so that prices would signal ad￾justments in the markets. The belief is that direct

sales ties between producers and end-users will

facilitate market adjustments without regulatory

requirements clouding the market. As more gas is

deregulated, FERC reasoned that natural gas prices

will respond to the demand: Lower prices would

assist in clearing excess supplies; then as markets

tightened, prices would rise drawing further invest￾ment into supply development.

FERC Order No. 636

Order 636 required signifi cant “Restructuring”

in interstate pipeline services, starting in the fall of

1993. The original Order 636:

• Separates (unbundles) pipeline gas sales from trans￾portation

• Provides open access to pipeline storage

• Allows for “no notice” transportation service

• Requires access to upstream pipeline capacity

• Uses bulletin boards to disseminate information

• Provides for a “capacity release” program to tem￾porarily sell fi rm transportation capacity

• Pregrants a pipeline the right to abandon gas sales

• Bases rates on straight fi xed variable (SFV) design

• Passes through 100% of transition costs in fi xed

monthly charges to fi rm transport customers

FERC Order No. 636A

Order 636A makes several relatively minor

changes in the original order and provides a great

deal of written defense of the original order’s terms.

The key changes are:

• Concessions on transport and sales rates for a

pipeline’s traditional “small sales” customers (like

municipalities).

• The option to “release” (sell) fi rm capacity for less

than one month—without posting it on a bulletin board

system or bidding.

• Greater fl exibility in designing special transporta￾tion rates (i.e., off-peak service) while still requiring

overall adherence to the straight fi xed variable rate

design.

• Recovery of 10% of the transition costs from the

interruptible transportation customers (Part 284).

Court action is still likely on the Order. Fur￾ther, each pipeline will submit its own unique tariff

to comply with the Order. As a result, additional

changes and variations are likely to occur.

20.10 THE CLIMATIC CHANGE ACTION PLAN

The Climatic Change Action Plan was established

April 21, 1993 and includes the following:

• Returns U.S. greenhouse gas emissions to 1990

levels by the year 2000 with cost effective do￾mestic actions.

• Includes measures to reduce all significant

greenhouse gases, carbon dioxide, methane,

nitrous oxide, hydrofluorocarbons and other

gases.

20.11 SUMMARY

The dynamic process of revisions to existing

codes plus the introduction of new legislation will

impact the energy industry and bring a dramatic

change. Energy conservation and creating new power

generation supply options will be required to meet

the energy demands of the twenty-fi rst century.

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CHAPTER 21

NATURAL GAS PURCHASING

549

CAROL FREEDENTHAL

JOFREEnergy Consulting

Houston, Texas

21.1 PREFACE

This is the second full revision for this chapter,

Natural Gas Purchasing. Chapter 21 was originally writ￾ten when the book was published in 1993. Rewrite for

the fi rst revision was a completely new effort done in

1996. As of 2000, the industry has continued to change

and is still in the conversion from a federally regulated,

price-controlled business to an economically dynamic,

open industry, and this is a completely revised writing.

Changes are continuing to shape the industry differently,

especially when coupled with the changes coming from

the potential decontrol of the electric power industry.

To make even more changes, the impact of ECommerce

business-to-business is beginning to play a role in this

industry. When this revision was started, only one com￾pany offered the web for gas marketing. As of 2000, fi ve

additional companies had launched ECommerce busi￾ness-to-business natural gas trading.

The old natural gas business is really a new busi￾ness. Its structure goes back 150 years but it is more like

a new industry. It has the typical growth and turmoil of

a new business. Energy products, especially natural gas

and electricity, are new businesses as the country goes

into the new millennium. Newly “reformed” companies,

new marketing organizations, new systems affecting gas

marketing, and even, a new industry structure makes it

necessary to start from scratch in writing the revision for

this chapter.

Like the new millennium, the natural gas industry

and equally as important, the total energy business is

going through its own transition. Change will continue

as companies and businesses try different strategies.

ECommerce will play a major role in the industry’s

transition. This phase of the transition is amorphous and

makes it diffi cult to predict the exact course of events

for the future. Things that appeared far-out years ago

are becoming closer to reality. The newest buzzwords,

“distributive electricity” includes the use of fuel cells and

small dual cycle turbine driven generators by residential

and small commercial users. Both of these are becoming

economically feasible. The impact on the gas and electric

industries is unknown. This is a time of change for the

new energy business. Marketing and supplying energy

products like natural gas and electricity will go through

many changes before optimum conditions are found.

A few things are for sure. Natural gas is becoming

the major fuel for stationary power uses in the United

States. Long dominated by oil products for this use, now

gas is becoming the leader. Coal continues as a major

fuel source for electric generation. Consumption of coal

for power generation has reached record levels in recent

years but environmental concerns and the required high

capital for new coal burning generating plants will reduce

coal’s market share. The public’s dislike of nuclear power

and the high costs to build plants with the safety desired

means no growth for this industry. A new philosophy

will have to be developed by society recognizing safety

and environmental benefi ts of atomic power before new

nuclear facilities will be built.

The natural gas industry, just like the power indus￾try, which is going through its own decontrol activities,

change will be a way of life always. Companies in the

energy fi eld and in associated areas such as communi￾cations, fi nancial, systems, etc. will continue to merge,

acquire, spin off, and change their structure and goals.

As the country goes into the new millennium, these are

industries in transition and will change along with the

growth industries in cyberspace. A big difference from

the old, staid and conservative electric and gas utilities

of the prior century! Change and growth are the way.

Regardless of this, one factor continues to domi￾nate. The profi t motive is still the driving force of the

industry today. It will not change but will continue

into the future. Economics will govern change and

be the basis for decision making. All the transforma￾tions—buying and selling of companies, new marketing

companies, new systems for handling the merged assets,

etc. will all be subject to one metric; is it profi table? Al￾ready, some acquisitions made by large electric and gas

companies to bring together various parts of the energy

industry have come apart because the fi nal economics

did not pass muster.

The purpose of this chapter is to give the fuel buyer,

for any operations or industry, the knowledge and infor-

550 ENERGY MANAGEMENT HANDBOOK

mation needed to buy natural gas for fuel. The buyer may

be in a large petrochemical plant where natural gas is a

major raw material or may be the commercial user hav￾ing hundreds of apartments needing gas for heat and hot

water or plant operator where the gas is used for process

steam. It might be a fi rst time experience or an on-going

job for the buyer. This chapter will give the background

and information to fi nd natural gas supplies for any need

at the lowest cost and highest service and security. The

chapter will include information on history of the indus￾try, sources of supply, transportation, distribution, stor￾age, contracts, regulatory, and fi nancial considerations

needed to buy natural gas.

21.2 INTRODUCTION

Natural gas is predominately the compound “meth￾ane,” CH4. It has the chemical structure of one carbon

atom and four hydrogen atoms. It is the simplest of the

carbon based chemicals and has been a fuel for industry,

for illumination, and for heating and some cooling of

homes, offi ces, schools, and factories. Natural gas is also,

a major fuel for generating electricity. In addition to fuel

uses, gas is a major feedstock for the chemical industry

in making such products and their derivatives as am￾monia and methanol. Natural gas is used in refi ning and

chemical plants as a source for hydrogen needed by these

processing businesses. Through the reforming process,

hydrogen is stripped from the methane leaving carbon

dioxide, which has its usefulness in chemical manufac￾turing or use, by itself in cooling, carbonated drinks, or

crude oil recovery.

The term “natural gas industry” includes the peo￾ple, equipment, and systems starting in the fi elds where

the wells are located and the natural gas is produced. It

includes other fi eld tasks as gathering, treating, and pro￾cessing. Transportation to storage or to interstate or in￾trastate pipelines for further transportation to the market

area storage, or to the distribution system for delivery to

the consumer and the burner tip, are part of the system.

The burner tip might be in a boiler, hot water heater, com￾bustion engine, or a chemical reactor to name a few of the

many uses for natural gas.

Natural gas is produced in the fi eld by drilling into

the earth’s crust anywhere from a couple of thousand

feet to fi ve miles in depth. Once the gas is found and the

well completed to bring the gas to the earth’s surface, it is

treated if necessary to remove acid impurities and again,

if necessary, processed to take out liquid hydrocarbons of

longer carbon chains than methane, which has a single

carbon atom. After processing, the gas is transported in

pipelines to consuming areas where distribution compa￾nies handle the delivery to the specifi c consumer.

In addition to the people and companies directly

involved in the production, transportation, storage, and

marketing of natural gas, there are countless other busi￾nesses and people involved in assisting the gas industry

to complete its tasks. There are systems companies, regu￾latory and legal professionals, fi nancial houses, banks,

and a host of other businesses assisting the natural gas

industry. Figure 21.1 shows the many parts of the indus￾try as it is known today. The money fl owing through the

major sections of the industry are shown in Figure 21.2.

The $85 billion industry shown in the diagram only repre￾sents the functions in getting natural gas, the commodity,

to market and consumption. Not included in the overall

industrial revenues are the moneys generated by the sales

and resale of gas before its consumption, the processing

and marketing of natural gas liquids coming from the

gas, and the fi nancial markets where gas futures and

other fi nancial instruments are sold and traded. These are

big businesses also. Estimates are that the physical gas

is traded three to four times before consumption. In the

fi nancial markets, gas volumes 10 to 12 times the amount

of gas consumed on an average day are traded daily.

Figure 21.3 should be of most interest to the natural

gas buyer as it depicts the various sales points, stages,

and handling the gas goes through in getting from the

wellhead to the burner tip—from the wellhead to the

consumer. As one can see in the diagram, there are many

alternate paths the gas can travel before coming to its

end use as a fuel or feedstock for chemical manufactur￾ing. Each one of the stages on the fl owsheet represents

an added value point in the travel to consumption. Raw

gas coming from the wellhead many times has suffi cient

quality to go directly into a transporting pipeline for de￾livery to the consuming area. Sometimes the gas needs

fi eld treating and/or processing to meet pipeline specifi -

cations for acceptance into the pipeline.

The gas industry is the oldest utility except for

water and sanitation. In the middle of the 19th century,

many large cities used a synthetic gas made from pass￾ing steam over coal to light downtown areas and provide

central heating systems. Big cities like Baltimore, New

York, Boston, and many more cities and municipalities

used gas for illumination. Many utilities from that period

exist today and are still gas and electric suppliers to the

areas they serve.

In the early days of the gas business, there was no

natural gas, as known today. Instead, these utilities pro￾duced a synthetic gas for both the illumination and the

central heating systems. The synthetic gas, sometimes

called “water gas” because of the method of producing it,

NATURAL GAS PURCHASING 551

Figure 21.2 Gas Industry Money Flow for Business Activities.

Figure 21.1 Natural Gas Industry Flowsheet.

552 ENERGY MANAGEMENT HANDBOOK

had bad attributes—it contained a high content of hydro￾gen and carbon monoxide, two bad actors for a gas used

in homes, businesses, and factories. People died when

exposed to it because of the carbon monoxide, and build￾ings blew-up because of the hydrogen when free gas from

leaks or pipe ruptures was ignited. When natural gas

came on the scene in the early 1900s, where it was avail￾able, it quickly replaced the old manufactured gas. About

the same time, advances were made in electricity so that

cities and municipalities changed to electricity for light￾ing and illumination. Natural gas quickly lost its market

for municipal lighting.

Natural gas was originally an unwanted by-product

from the oil fi elds. Problem was getting rid of it. Flaring

was used, but this was a waste of good natural resources.

Around the beginning of the century, associated gas from

Ohio oil fi elds was shipped to Cleveland in wooden pipes

to replace the then used synthetic gas. In the early days of

the industry, the limitations to greater uses of natural gas

were that gas was produced in only certain parts of the

country and transportation was available for only very

short distances. Market penetration was thwarted by the

ability to ship it. There were no long distance pipelines in

the early days of the industry. Natural gas made a great

replacement for the synthetic counterpart—methane is

essentially safe as far as toxicity and is much safer as

far as explosion. Gas’ growth was dependent on build￾ing long distance pipelines. Not until the 1930s did the

industry have the capability of making strong enough,

large steel piping needed for the long-distance pipelines.

Completion of major interstate pipelines to carry gas from

producing regions to consumers was the highlight of the

1930s to the start of World War II in the early 1940s.

Pipeline construction came to a halt and was dor￾mant until the war’s end. Construction went full force

after the war to insure delivering the most economical

and easiest fuel to America’s homes, commercial facilities

and industrial players. Even today with the start of the

new millennium, some areas of the U.S. still do not have

a fully developed natural gas distribution and delivery

system. Areas in the West where population is sparse,

parts of the Northeast where oil prices were too competi￾tive to delivered gas prices, and other parts of the country

lacking distribution systems for the same reasons are still

without natural gas. Many of these use what is called

“bottled gas,” a mixture of propane and butane or pro￾pane only for home heating and other critical uses. Just

recently, new supplies and pipelines were developed to

bring natural gas to the Northeast U.S. from Canada. Ad￾ditional distribution systems will bring more gas to more

customers through the country from the tip of Florida to

the North Central and West Northern states.

Ever since natural gas became available for fuel, it

was under some form of government economic control.

Through the tariff mechanism for pricing natural gas,

the government had the power to make gas prices more

or less attractive to competing fuels. Further, with the

government controlling wellhead prices and slow to

make changes in prices as conditions changed, it became

diffi cult and economically undesirable to expand natural

gas production. Government price controls hampered the

growth of the U.S. natural gas business. The gas shortages

of the mid-1970s are an example of government control

stifl ing expansion and growth. There was no shortage of

gas reserves, only a shortage of incentives for producers

to develop and supply the gas. The free market builds its

own controls to foster competition and growth.

Congress passed the Natural Gas Policy Act of 1978

to change the policy of government economic control. A

few years of transition were needed before signifi cant

changes began in the industry. Real impact started in

1985. Even today, the industry is still in transition. The

federal decontrol changed interstate marketing and

movement of natural gas. Gas at the local levels where

the state Public Utility Commission or similar local gov￾ernment has control, is still heavily regulated. Decontrol

at the federal level is slowly fi ltering down to local agen￾cies. As of 2002, some states began moving to “open

transportation” rules. A current obstacle to the swifter

implementation of rules at the state and local levels is the

tie of gas and electricity as utilities within state regulatory

control. With the electric industry going through its own

“decontrol,” many wanted to see the much larger electric

industry work out the utility problems. Then gas could

follow with less negotiating and discussion. The electric

timetable is now years behind its planned evolution and

this has slowed gas local control further.

Figure 21.3 Wellhead to Consumer Flowsheet