EPA-450/3-76-030a
August 1975
                          IMPACT
              OF NATURAL GAS
                CURTAILMENTS
                   ON ELECTRIC
               UTILITY PLANTS
              VOLUME I - TEXT
 U.S. ENVIRONMENTAL PROTECTION AGENCY
     Office of Air and Waste Management
  Office of Air Quality Planning and Standards
  Research Triangle Park, North Carolina 27711

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                            EPA-450/3-76-O3Oa
               IMPACT
       OF NATURAL GAS
         CURTAILMENTS
                  ON
ELECTRIC UTILITY PLANTS
       VOLUME  I - TEXT
                   by

                Energy Division
              Foster Associates, Inc.
               Washington, D. C.
              Contract No. 68-02-1452

                 Task No. 1
         EPA Project Officer: Rayburn Morrison
                 Prepared for

        ENVIRONMENTAL PROTECTION AGENCY
          Office of Air and Waste Management
        Office of Air Quality Planning and Standards
        Research Triangle Park, North Carolina 27711

                 Vugust 1975

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This report is issued by the Environmental Protection Agency to report
technical data of interest to a limited number of readers.  Copies are
available frea of charge to Federal employees, current contractors and
grantees, and nonprofit organizations - in limited quantities - from the
Library Services Office (MD35) , Research Triangle Park, North Carolina
27711; or,  for a fee, from the National Technical Information Service,
5285 Port Royal Road, Springfield, Virginia 22161.
This report was furnished to the Environmental Protection Agency by
the Energy Division of Foster Associates, Inc., Washington, D.C., in
fulfillment of Contract No. 68-02-1452, Task No.  1.  The contents of
this report are reproduced herein as received from Foster Associates,
Inc.  The opinions, findings,  and conclusions expressed are those
of the author and not necessarily those of the Environmental Protection
Agency. Mention of company or product names is not to be considered
as an endorsement by the Environmental Protection Agency.
                    Publication No. EPA-450/3-76-030a
                                     11

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                      ACKNOWLEDGEMENTS







     This study was prepared under the direction of John A.



Brickhill by the Energy Division of Foster Associates.



Participating in the preparation of the study were Joseph



Curry, Paul Wilkinson, Leon Tucker and William Blair.  Wayne



Mikutowicz acted as technical reviewer for the study.

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                         VOLUME ONE
                      TABLE OF CONTENTS
INTRODUCTION

SUMMARY

CHAPTER I
CHAPTER II
CHAPTER III -
CONSUMPTION OF GAS BY ELECTRIC UTILITIES

A.  Natural Gas Supply and Demand
B.  Gas Consumption by Sector
C.  Sources of Gas Supply to Electric
      Utilities

CURTAILMENTS OF NATURAL GAS SALES BY
INTERSTATE PIPELINE COMPANIES

A.  Traditional Gas Pipeline Economics
    1.  Pipeline Services
        a.  Character of Pipeline Service
    2.  Economics of Pipeline Operation
    3.  Characteristics of Demand for
        Natural Gas
    4.  Regulation Under the Natural
        Gas Act

B.  The Development of Federal Power
    Commission Policy Concerning  Gas
    Supply Curtailments
    1.  Design of End-Use Priority
        Curtailments

C.  Current Curtailment Plans of 38
    Interstate Pipelines

D.  Prospects of Gas Curtailment -
    Electric Generation vs. Other
    Industrial Use

CURTAILMENT OF NATURAL GAS SALES BY GAS
DISTRIBUTORS AND INTRASTATE PIPELINES

A.  The NARUC Survey
    1.  Gas Curtailments
    2.  Restrictions on New or Added
        Gas Services
    3.  Conservation of Gas
    4.  Programs for Additional Gas
        Supplies
    5.  Other Questions and Responses
    6.  Summary
 Page

 viii

 x

  1-1

  1-2
  1-4

  1-8


 II-l

 II-2
 II-4
 II-5
 II-6

 11-14

 11-16



 11-25

 11-26


 11-37



 11-43


III-l

III-2
III-3

III-5
III-5

III-6
III-7
III-7
                             IV

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CHAPTER IV
CHAPTER V
                   Curtailment Plans in Intrastate Markets  III-9
                   1.   Texas                                III-9
                   2.   Louisiana                            111-16
                   3.   Oklahoma                             III-18

                   The Impact on Electric Utilities and
                   Industrials of Curtailments by Distributors
                   and Intrastate Pipelines                 111-19
THE PROJECTED AVAILABILITY OF NATURAL GAS
TO ELECTRIC UTILITY STEAM-ELECTRIC PLANTS
1975 TO 1980

A.  Projections for Predominantly Interstate
    Markets
    1.  Forecast of Gas Supplies Available
        to California Steam-Electric Power
        Plants, 1975-1980

B.  Projections for Predominantly Intrastate
    Markets

THE CURRENT AND PROJECTED USE OF ALTERNATIVE
FUELS BY GAS-BURNING UTILITY POWER PLANTS

A.  Current Alternate Fuel Burning Capacity
    of Gas-Burning Electric Utility Power
    Plants

B.  Summary of The Alternate Fuel Capability
    in the Interstate Market
               C.   Summary of the Alternate Fuel Capabilities
                   in the Intrastate Market

               D.   Projections of Alternate Fuel Demand by
                   Electric Utilities Due to Reductions in
                   Gas Supply

               E.   Deterrents to the Use of Alternate Fuels
                   by Electric Utilities

               F.   The Relative Role of Natural Gas as an
                   Electric Utility Boiler Fuel by Region
IV-1


IV-7


IV-19


IV-31


 V-l



 V-l


 V-4


 V-ll



 V-18


 V-21


 V-24

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                 INDEX OF TABLES AND CHARTS

                                                       Page
Table     Summary of Electric Utility Purchases
            of Natural Gas by Type of Supplier - 1973  IV

Table     Summary of Current and Projected Gas
            Consumption for Electric Utility Steam
            Generating Plants 1973-1980                VIII

Chart     Projected Decline in Gas Consumption by
            Electric Utilities and the Resulting
            Increases in Fuel Oil and Coal Consumption
            Between 1973 and 1980                      XI

          Projected Increases in Fuel Oil and Coal
            Consumption by Electric Utilities
            Attributable to the Decline in Natural
            Gas Consumption Between 1973 and 1980
Table          1.  Trillions of Btu's                  XII
Table          2.  Thousands of Tons of Coal
                   Barrels of Oil                      XIV

Table     Natural Gas Consumption in Power Plants
            and Electric Output from Natural Gas
            Consumed 1966-1973                         1-1

Table     Industrial Gas Consumption by State - 1973   1-6

Table     Electric Utility Gas Consumption by
            State - 1973                   .            1-7

Table     Components of the Burner Tip Price of Gas
            in 1973                                    II-7

Chart     Monthly Distributor Sales of Gas in the
            United States by Sector, July 1972 -
            June 1973                                  11-15

Table     Regulated Gas Utility Annual Sales by Service
            Class, Percent of Total Sales, 1950-1973   11-36

Table     Current and Projected Gas Consumption for
            Electric Utility Steam Generating Plants   IV-3

Table     Illustrative Interstate Supply Projection    IV-13

Table     Illustrative Interstate Supplies by End-Use  IV-14

Table     El Paso Natural Gas Company Curtailment Plan
            and End-Use Gas Requirements of System
            Customers                                  IV-22

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Table
Table
Table
Table



Table



Table


Table
Southern California Gas Company and
  Pacific Gas and Electric Company 1973
  Gas Supplies and Sources of Supply

Southern California Gas Company and
  Pacific Gas and Electric Company
  Allocation of 1973 Gas Supplies by
  Priority of Service Steps of the
  El Paso Natural Gas Company Curtailment
  Plan

Southern California Gas Company and Pacific
  Gas and Electric Company Projected Total
  Gas Supplies 1974-1980 and Supply
  Reductions from 1973 Supplies
                                                       IV-23
                                                       IV-24
                                                       IV-25
Southern California Gas Company and Pacific
  Gas and Electric Company Estimated Total
  Gas Supplies for Power Plants              IV-26

Estimated Gas Supplies Available to Southern
  California Gas and Pacific Gas and Electric
  Company 1973-1980                          IV-28

Gas Supplies to Power Plants 1974 as Percent
  of 1973                                    IV-29
City of Burbank Public Services -
  Burbank Plant
                                                       IV-30
                            vn

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                      INTRODUCTION







     In light of the worsening gas shortage, federal and



state regulatory agencies have promulgated policies with



respect to the distribution of gas sales when demand exceeds



supply.  Gas companies in turn have implemented or are about



to implement specific curtailment plans, the results of which



have a significant impact on natural gas consumption by electric



utilities and industrial concerns and thus could affect air



quality by requiring the use of alternate fuels such as coal or



oil.



     This study analyzes curtailment plans of interstate pipelines,



intrastate pipelines and gas distributors, and ilso analyzes



state and federal policy with respect to implementation of these



curtailment plans.  In light of applicable curtailment plans



and available information regarding the supply situations for



gas pipelines and distributors, the availability of gas to 415



electric utility power plants is projected annually to 1980.



These plants accounted for 93 percent of electric utility gas



consumption in the U.S. in 1973.  The study appraises the



impact of the gas shortage on demand for fuel oil and coal



and the fuel burning capability other than gas for electric



utilities.



     The study is contained in two volumes, one containing



text and the second containing schedules.  Immediately following



this introduction is a summary of pertinent findings.  The
                             vi i i

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main body of text begins with the analysis of the jurisdictional



aspects of electric utility gas consumption, describing the



gas purchases of 415 electric utility power plants.   Chapter II



describes the curtailment plans of interstate pipelines, and



Chapter III explains curtailment policies of companies who do



not fall under Federal Power Commission jurisdiction.   The



forecasts of gas availability for individual power plants



are explained in Chapter IV.  The study concludes with Chapter V,



which deals with the alternative fuel burning capability of



electric utilities.
                             IX

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                           SUMMARY








     Until the 1970's, natural gas consumption by electric



utilities accounted for a significant and growing proportion



of both total natural gas consumption by all users, and of



total electric power generated.   In the 1970's, however, in-



creasing shortages of natural gas have reversed this trend.



     Considerable variations exist in the amount of natural



gas burned by electric utilities in various parts of the U.S.



and in the sources of this gas.   The following table sets



out the volumes of natural gas consumed in 1973 by EPA re-



gion and by types of supplier.  The table is a summary of



the results of the analysis of 415 gas-burning power plants



which cover 93 percent of the natural gas consumed by elec-



tric utilities in the U.S.



     Consumption of gas by power plants analyzed herein



amounted to 3.4 trillion cubic feet (Tcf) in 1973, of which



1.3 Tcf or 38 percent was sold by interstate pipelines.  The



remaining 62 percent was sold to electric utilities by intra-



state pipelines or gas producers.  Interstate pipelines are



regulated by the Federal Power Commission, and thus this agency



has significant influence on the amount of gas sold directly or



indirectly to power plants by interstate pipelines.  In



gas producing regions, electric utilities can obtain gas from



producers or intrastate pipelines, which are subject to

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         SUMMARY OF ELECTRIC UTILITY PURCHASES OF NATURAL GAS
                          BY TYPE OF SUPPLIER
                                 1973

                       (Billions of Cubic Feet)
 EPA
Region

 I
 II
 III
 IV
 V
 VI
 VII
 VIII
 IX
 X

TOTAL
   From
Interstate
Suppliers

    5.6
   64.5
    4.1
  144.0
  138.2
  183.3
  245.
   58.
  447.8
    2.4
,3
,5
1,293.7
   From
Intrastate
Suppliers

    0
    0
    0
    0
    0
1,798.3
   52.9
    3.7
   70.8
    0

1,925.7
  From
Producers

   0
   0
   0
 110.1
   0
  47.0
   3.5
   0
   8.9
   0

 169.5
                                         Other
Total
0
0
0
0
0
1.9
0
0
0
0
5.6
64.5
4.1
254.1
138.2
2,030.5
301.7
62.2
527.5
2.4
                                          1.9     3,390.8
EPA Region I -

EPA Region II -
EPA Region III -

EPA Region IV -

EPA Region V -

EPA Region VI -
EPA Region VII -
EPA Region VIII -

EPA Region IX -
EPA Region X -
         Massachusetts, Rhode Island, Vermont,  Connecticut,
         Maine,  New Hampshire
         New Jersey, New York
         Delaware,  Pennsylvania, Virginia, Maryland,  West
         Virginia
         Alabama, Florida,  Georgia,  Kentucky, Mississippi,
         North Carolina, South Carolina,  Tennessee
         Illinois,  Indiana, Michigan, Minnesota,  Ohio,
         Wisconsin
         Arkansas,  Louisiana, New Mexico, Oklahoma,  Texas
         Iowa, Kansas,  Missouri, Nebraska
         Colorado,  Montana, South Dakota, North Dakota,  Utah,
         Wyoming
         Arizona, California, Nevada
         Oregon, Washington, Idaho

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regulation by state regulatory bodies.




     Interstate pipelines suppliers accounted for all gas



received by power plants in EPA regions I, II, III, V, and



X, and the majority of gas in regions VII, VIII and IX.  In



region IV, the sources of gas to power plants were evenly



divided as between interstate and intrastate.  In region VI,



where a total of 2.0 Tcf, or 60 percent, of total electric



utility consumption was burned in power plants, the sources



were largely from intrastate pipelines and producers.



     Increasing natural gas shortages have necessitated the



development of curtailment plans by sellers of gas to deal



with their inability to satisfy contractual obligations.



The Federal Power Commission has formulated guidelines for



interstate pipelines which reflect end-use considerations in



determining the reductions in deliveries to customers.  Vol-



umes for residential and small commercial use are treated as



the highest priority.  The next priority is composed of larger



commercial users and industrial users, predominantly those



with small daily takes or who use gas for purposes which have



no alternatives to gas.  Larger industrial customers with firm



contracts follow in the priority structure.  Last in the



priority structure are volumes for users with interruptible



contracts, with curtailments reflecting size.  Volumes for the



lowest priority of use are to be completely eliminated prior



to curtailment of volumes for the next priority.  Since electric



utilities served directly or indirectly by interstate pipelines





                               xii

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generally purchase relatively large amounts of gas under interrup-



tible contracts, they would be theoretically curtailed first.



     Not all interstate pipelines are operating under end-



use plans.   However, traditional operating practice by gas



companies would result in initial curtailments falling first



on interruptible contracts.  Also, in light of FPC policy



it is reasonable to assume that as shortages worsen, virtu-



ally all interstate pipelines will have end-use plans in



effect.   Some variations in the specific priority structure



can be expected to accomodate difference? in the market



structure of various pipelines.



     The curtailment policies of local regulatory bodies af-



fect results to ultimate consumers in those cases where gas



obtained by distributor companies from interstate pipelines



is subsequently resold and where gas flows directly from



producers or intrastate customers to ultimate consumers with-



out entering interstate commerce.  Electric utility use is



generally among the first to be reduced in times of shortfalls



in most states for which information is available.



     Electric utilities in Texas consume 37 percent of the



gas consumed by electric utilities in the U.S.  In that



state, electric utility boiler fuel use also is considered



to be low i riority in curtailments.  Moreover, the Texas



Railroad Commission has initiated hearings to explore the



phaseout of natural gas used as a boiler fuel in the state.
                             xiii

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     It may thus be surmised that electric utilities initial-



ly will bear the brunt of the gas shortage in the U.S.   The



following table summarizes the projections of electric  util-



ity gas consumption to 1980 by year.



     These projections reflect plant by plant projections



developed in this study.   As data were available, individual



company situations with respect to supply and requirements



and curtailment plans in effect were reviewed.



     The total volume of natural gas consumed by electric



utilities is shown to decline by half between 1973 and  1980.



In EPA regions I, II, III and V, it is projected to be  virtu-



ally non-existent in the late 1970's.



     By 1980, it is projected that within predominantly in-



terstate markets electric utilities in only two states  --



Kansas and Florida -- will have appreciable gas consumption.



Nevertheless, electric utility gas consumption in both  states



is forecast to decline significantly.  California, New  York



and Arkansas, three states in which electric utilities  have



traditionally burned large amounts of gas, would have little



gas available for electric utility gas consumption after



1975.  Thus, for predominantly interstate markets, it may be



concluded that gas will not be a major boiler fuel in the



future.
                             xi v

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                                                                          XV
FA-18962

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     Gas consumption by electric utilities in EPA region VI



is shown to decline significantly, but not to the same rela-



tive extent as in other regions.  Depending on actions by the



Texas Railroad Commission and other authorities in this re-



gion, this projection could be altered significantly.



     The impact of the gas shortage on electric utilities



will be to displace a substantial portion of their energy



needs to other fuels.  Each of the 415 gas-burning power



plants has been analyzed, based upon available data, to deter-



mine its capability to burn alternate fuels.  With the



major exception of plants in EPA region VI, most of the



electric utilities in the U.S. are capable of burning oil



or coal in gas-burning plants with little or no boiler de-



rating.



     The alternate fuel capability of gas-burning electric



utilities in EPA region VI is difficult to assess.  In 1973,



the majority of plants had limited or no alternate fuel



capability.  Since 1973, sovae plants have been modified so



as to be able to burn alternate fuels, and some electric



utilities indicate future plans for plant modification.  However,



the exact number of plants which have undergone or will undergo



conversion cannot be estimated at this time.



     By integrating the plant by plant projections of natural



gas availability with the plant by plant analysis of alternate



fuel capability, the effect of the gas shortfall on alternative
                               xvl

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fuel consumption can be estimated.  The following chart and



table show the estimated use of alternative fuels by existing



electric utility plants due to reductions in gas supply from



1973 to 1980.  The declines in gas consumption effect changes



in one of three categories -- demand for coal, demand for



oil and indeterminate (limited or no known alternative fuel



burning capability at this time).



     It should be noted that on the table certain data are



shown in brackets, denoting negatives.  This situation



arises for plants in which gas consumption is projected to



increase from 1973 levels and therefore the consumption of



alternative fuels would decline.



     By 1980, shortfalls in gas deliveries in the U.S. would



result in additional coal consumption of over 348 trillion



Btu's and additional fuel oil consumption of 1074 trillion Btu's.



A net reduction of 273 trillion Btu's is shown for plants which



at this time have limited or no known alternative fuel burning



capability.  Excluding those plants for which increases in



gas consumption are projected, the reduction in gas deliveries



by 1980 would be 349 trillion Btu's in plants which at this



time have limited or no known alternative fuel burning capability



     Most of the indeterminate category is within EPA region



VI.  Based upon the conversions of gas-fired plants to oil



which have already taken place, it might be assumed that to



the extent conversion is feasible, the most likely alternative



in this region is fuel oil.






                           xvii

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                                                     XIX

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     The table on the following page shows the same data



for fuel oil and coal in barrels and tons, respectively.



In 1980 the reduction in gas consumed by electric utilities



in the U.S. would result in consumption of 170.8 million barrels



of oil and 15 million tons of coal.
                             xx

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                                             XXI
FA-19008

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                         CHAPTER I

        CONSUMPTION OF  GAS  BY  ELECTRIC UTILITIES



     Until 1973,  increasing quantities of natural gas had

been consumed annually  by electric utilities in the U.S.

Moreover, an increasing share  of total electric output

had been generated by consumption of natural gas up through

1970.  These trends have been  reversed in the last two years,

as shown on the  table below.

          Natural Gas Consumption              Electric Output From
Year              in Power Plants               Natural Gas Consumed

Trillion Btu
Percent of
Million kwh
Total Gas Consumption
1966
1968
1970
1972
1973
2,536
3,081
3,920
4,271
3,651
14 . 2%
15.0
16.8
17.2
17.1
251,151
304,433
372,884
375,682
336,001
Percent of Total
Electric Output
26.5%
27.5
29.1
25.5
21.3
Source:  Future Requirements Committee, Edison Electric Institute.


     The proportion of total electric output attributable

to consumption  of  natural gas began to decline in 1971

despite continuing increases in total gas volumes, largely

because of  sharp  increases in electric generation with

nuclear fuel  and  fuel  oil.  The trend towards a declining

electric output share  of natural gas will almost certainly

accelerate  in the  future as the sharpening natural gas

shortage makes  further inroads into supplies of gas available

to electric utilities.

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     The focal point of this study is to analyze the



availability of natural gas to electric utility steam-



electric plants.  Major variables affecting gas consumption



are the total amount of gas available for all users and the



methods of allocating limited supplies among classes of



service -- residential, commercial, industrial, and electric



utility --by the sellers of gas.  The purpose of this



chapter is to set the stage for subsequent analyses by



establishing general gas supply and demand considerations



which affect electric utility gas consumption, identifying



the gas burning power plants that are studied, and analyzing



the sources of gas supply to these power plants.



A.   Natural^ Gas Supply and Demand



     There is a critical and continuing shortage of natural



gas in the United States.  Natural gas has been a major source



of energy in the United States since World War II, and has



become the "premium" fossil fuel for energy consumption



in the United States.  From 1960 to 1973, consumption of



gas increased 86 percent, substantially more than consumption



of coal and petroleum, but substantially less than the increase



which would have taken place but for the gas shortage that



developed in the latter part of this period.



     There are two major reasons accounting for the sub-



stantial increase in demand for gas -- 3ts unique physical



characteristics vis-a-vis other fossil fuels and its low
                           1-2

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price.  The popularity of gas in part reflects its clean-

burning characteristics and the convenience of its use.

Since the sulfur content of gas is negligible at the burner

tip, gas does not foul or corrode the equipment in which it

is burned to the extent that coal and oil do.  The clean-

burning characteristics of gas have taken on added impor-

tance in recent years because the United States has undertaken

a substantial effort to reduce air pollution.  Users of

gas do not require on-site storage facilities which are

required for oil and coal.  Also, natural gas has certain

physical attributes which make it desirable for use in

direct-firing applications or as a raw material in the

chemical industry.

     However, the magnitude of the shortage indicates

that not all demands can be met for the indefinite future,

and indeed at the present time current contracts to deliver

specified volumes of gas to consumers cannot be fulfilled

due to lack of supply.  Interstate pipelines curtailed

firm contracts by 1968 billion cubic feet (Bcf) in 1974.

     Increasing curtailments by pipelines reflect declining

deliverability of natural gas reservoirs, caused by reserves

additionsi/ inadequate to support increased levels of


lY   The term reserves additions means the annual net
     change in proved reserves, reflecting discoveries
     of new fields, new reservoirs in old fields, exten-
     sions, and revisions of prior estimates.
                           I -3

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production.  Proved reserves—'  of natural gas have been

falling since 1968, declining to 205 trillion cubic feet

at the end of 1974.  From 1968 to 1974, reserves additions

have been less than half of production.  The natural gas

reserves-to-production ratio for the Lower 48 States has

fallen from 21.8 in 1956 to 15.8 in 1967 to 9.7 in 1973

and 1974.  In 1974, production declined by 5.8 percent,

the first recorded production decline since a small down-

ward change in 1958.

B.   Gas Consumption by Sector

     Gas consumption by sector -- residential, commercial,

industrial and electric utility -- is set out on Schedule

1-1 as reported by the Future Requirements Committee.

Sheets 1 and 2 of the schedule show consumption of gas

in trillions of Btu's by region.2/ and state, and sheets 3

and 4 show the percentage distribution of gas consumption

by sector for each region and state.


I/   Proved reserves are the current estimated quantity
     of natural gas which analyses of geologic and engi-
     neering data demonstrate with reasonable certainty
     to be recoverable in the future from known gas
     reservoirs under existing operating and economic
     conditions.  Thus, proved reserves differ from the
     potential reserves which have not as yet been found.

2J   The regional designations utilized in the main body
~~    of text hereinafter are those of the Future Require-
     ments Committee.
                          1-4

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     In 1973, gas consumption in the Lower 48 United States

was 19,876 trillion Btu's, excluding field and "other" use.

Of this total, firm—'  residential and commercial customers

consumed 36.4 percent, firm industrial customers consumed

31.3 percent, interruptiblej*/ industrial customers consumed

13.9 percent, firm electric utility customers consumed 10.6

percent and interruptible electric utility customers consumed

7.8 percent.

     The distribution of gas consumption varies considerably

by region and state.  At one extreme, over three-quarters

of the gas market in New England is comprised of residential

and commercial customers.  Conversely, less than 11 percent

of the gas market in the Gulf Coast is comprised of residen-

tial and commercial customers -- the preponderance of con-

sumption is comprised of industrial and electric utility

fuel users.

     Approximately two-thirds of industrial gas consumption

in the Lower 48 States occurs in eight states, which are

listed below.
lY   Service offered to customers under schedules or contracts
~    which anticipate no interruptions.  Certain firm service
     contracts may contain clauses which permit unexpected
     interruption in case the supply to residential customers
     is threatened.

2_/   Low priority service offered to customers under
~    schedules or contracts which anticipate and permit
     interruption on short notice, generally in peak-
     load seasons, by reason of the claim of firm service
     customers and high priority users.
                          1-5

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           INDUSTRIAL GAS CONSUMPTION BY STATE

                          1973
                   Trillions          Percent of
                   of Btu's        National Total

Texas                2162               24.01
Louisiana            1120               12.4
California            702                7.8
Ohio                  437                4.9
Illinois              378                4.2
Pennsylvania          375                4.2
Michigan              356                4.0
Indiana               282                3.1
All Other States     3182               35.4
Total                8994              100.0

     Source:  Future Requirements Committee.
     The volume of industrial gas consumed in Texas,

Louisiana, and California reflects not only the overall

dimension of industrial energy requirements in these states

but also the heavy reliance on gas to meet industrial

energy requirements -- in 1973 gas met 83 percent of

California industrial energy consumption, and over 90

percent of industrial energy consumption in Texas and

Louisiana.

     In each of the 8 largest industrial gas consuming

states with the important exception of California, firm

contracts dominate industrial consumption.  Firm volumes

range from 67 percent of industrial gas consumption in

Michigan to 97 percent in Louisiana.  Hov.'ever, in Califor-

nia firm gas is only 14 percent of total industrial gas

consumption, reflecting California policy of not allowing

firm industrial contracts over 200 Mcf/day.


                         1-6

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     The remaining states, those with smaller volumes of

industrial gas consumption, rely upon interruptible con-

tracts to a greater degree.  The distribution of firm

versus interruptible volumes, although varying somewhat

in degree for specific states, is approximately 50-50.

     The following table shows electric utility gas consumption

in eight states which comprised 82 percent of electric utility

gas consumption in 1973.


        ELECTRIC UTILITY GAS CONSUMPTION BY STATE

                          1973

                 Trillions             Percent of
                 of Btu's            National Total

Texas              1285                   37.4%
California          468                   13.6
Louisiana           387                   11.3
Oklahoma            267                    7.8
Kansas              156                    4.5
Florida             148                    4.3
Arkansas             49                    1.4
New York             48                    1.4
All Other States    628                   18.3
Total              3436                  100.0

Source:  Form 423's accounting for 93 percent of total reported
         electric utility gas consumption.

     Thus, gas consumption by electric utilities is somewhat

more concentrated in a few states than gas consumption

by industrials.  Some 37 percent of electric utility gas

consumption occurs in the state of Texas alone.  There are 9

contiguous states which have no or negligible consumption of

gas by electric utilities.  Moreover, it is interesting to

note that five of the eight largest industrial gas burning

states -- Ohio, Illinois, Pennsylvania, Michigan and Indiana
                           1-7

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are not among the above listing of the eight largest electric

utility gas consuming states.

     In Texas, Louisiana, Oklahoma, and Florida, firm gas

consumption accounts for 75 to 100 percent of total electric

utility gas consumption.  In California, Kansas, Arkansas

and New York firm volumes are of little or no relative

importance.  Generally, most electric utilities in other

states!/ rely largely on interruptible gas.

C.    Sources of Gas Supply to Electric Utilities

     This section explores in greater detail the flow of

gas to electric utilities in the Lower 48 States.  By

reference to data developed for each of 415 gas burning

electric utility steam electric plants, this section

identifies some key contractual provisions with respect

to gas purchases by electric utilities.  In addition,

the sources (suppliers) of gas to these specific electric

utilities are traced.

     The Environmental Protection Agency provided a

list of power plants which burned gas from 1969 to 1973.

some of which did not burn gas in 1973 or in prior years.

To develop the list of gas burning steam electric plants

utilized herein, some plants which did not burn gas in prior

years were included.  Gas burning plants which began operation

after 1973 where added as well as some small gas burning plants

with nameplate ratings less than 25 Mw.


I/   Nevada and New Mexico are significant exceptions in
~    that electric utilities in these states burn greater
     amounts of firm gas than interruptible gas.


                            1-8

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     The plants utilized herein burned 93 percent of



reported electric utility gas consumption in 1973, which



includes some gas turbine use.  It is believed that the



remaining 7 percent would be accounted for in gas turbine



use, small plants, or synthetic (refinery or blast furnace)



gas.



     Schedule 1-2 shows for 415 gas burning power plants



the volume of firm or interruptible gas consumed in 1973



and whether or not the gas contract expires within 24 months,



as of December 1974 by supplier.  The notes (column 8)



indicate changes which may have occurred in 1974 with



respect to the gas contracts, and other pertinent observa-



tions .



     The total natural gas purchases shown at column  (4)



were provided by the Environmental Protection Agency, except



as noted.  The volumes attributable to firm and interruptible



contracts and individual suppliers were estimated by refer-



ence to FPC Form 423 data.



     Column (5) shows the percent of gas consumption by



the power plant provided by the supplier indicated at



column (7).  For example, the gas consumed by the Kendall



Square Plant in Massachusetts (sheet 1) burned 500 MMcf



of interruptible gas in 1973, all of which was supplied



by Commonwealth Gas Co., which in turn buys gas from



Algonquin Gas Transmission, an interstate pipeline.
                           1-9

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     The second power plant shown on sheet 1 is the



Fitchburg plant, which burned 596 MMcf of interruptible



gas in 1973 representing an interdepartmental transfer.



Interdepartmental gas transfers often occur for combination



electric and gas utilities, whereby the electric department



purchases gas from the gas department.  In the case of



Fitchburg Gas and Electric, the gas department purchases



gas from Tennessee Gas Pipeline Co., an interstate pipeline,



Thus, the company (ies) that actually sells (sell) the gas



is the first listed, and the company (ies) shown in paren-



theses is the next link in the transfer of gas.



     The detailed information provided with respect to the



sources of gas supply to the electric utilities is critical



in determining the future volume of gas available to these



electric utilities, as the supply situation and type of



curtailment plan of the supplier will influence the amount



of gas to the power plants.  Moreover, whether or not



the gas supply moves through interstate commerce subject



to tariff regulation of the Federal Power Commission (FPC)



is an important consideration.  As discussed at length



in Chapter II, the FPC and pipelines operating under its



jurisdiction have developed curtailment plans which affect



the amount of gas that electric utilities will burn.  Thus,



the denotation "interstate" following a pipeline's name



indicates that it falls under tariff jurisdiction of the
                            1-10

-------
FPC.  Some pipelines, or gas transportation contracts,

although subject to certificate jurisdiction of the FPC,

are shown as intrastate because they do not fall under

FPC tariff jurisdiction.  A substantial number of electric

utilities in gas producing states receive gas from intrastate

companies whose gas supply and transportation facilities

are entirely intrastate and these are indicated as intra-

state on the schedule.

     Schedule 1-3 summarizes by state some of the data from

1-2, showing electric utility purchases of natural gas by

type of supplier.  For example, columns (1), (2) and  (3)

show gas burned by electric utilities which passes through

interstate pipelines subject to tariff regulation of  the

FPC.  Column (1) indicates interdepartmental transfers,

column (2) indicates direct purchases from interstate

pipelines, and column (3) shows purchases from intrastate

pipelines or distributors who in turn purchase gas from

interstate pipelines.  Columns (4), (5) and (6) show

purchases of gas by electric utilities from intrastate

pipelines which do not pass through interstate pipelines

subject to tariff regulation of the FPC.—   Column (7)

shows the amount of gas which is purchased by electric

utilities directly from producers, without transfer of

ownership to a distributor and/or pipeline.

I/   Column (6) shows purchases from intrastate pipelines
     or distributors who in turn acquire their gas from
     other intrastate pipelines.
                             1-11

-------
     Schedule 1-3 shows that for the total U.S., electric



utilities directly or indirectly purchased 1294 Bcf from



interstate pipelines, 1926 Bcf from intrastate pipelines,



and 170 Bcf from producers.   Of the volume purchased from



interstate pipelines 28 percent was transferred from the



gas departments of combination utilities, 34 percent was



purchased directly from interstate pipelines, and 38



percent was purchased from intrastate pipelines or distrib-



utors who in turn purchased the gas from interstate pipelines.



With respect to the gas consumed by electric utilities which



is not affected by FPC jurisdiction, the majority - 95 percent



is purchased from intrastate pipelines who in turn buy the



gas at the wellhead in those states.



     Schedule T-3 also facilitates analysis of sources of



gas supply to electric utilities for specific regions



and states.  Electric utilities in the New England and



Appalachian regions acquire all of their gas through



interstate pipelines, which generally flows to the power



plants via interdepartmental transfers.



     In the Southeast region, less than half of electric



utility gas consumption is purchased from interstate



pipelines, with the remainder indicated as being purchased



from producers.  Florida Power and Florida Power {j Light



purchase gas from producers in Louisiana and Texas which



is then transported to power plants in Florida by Florida



Gas Transmission, an interstate pipeline.   While these
                            1-12

-------
transportation arrangements were subject to FPC approval,



it is believed that the volume of gas transported is not



curtailable— as are the actual sales to power plants by



Florida Gas Transmission.



     In the Great Lakes and Northern Plains regions, all



of the gas consumed by electric utilities flows through



interstate pipelines.  Approximately 24 Bcf is purchased



directly from interstate pipelines, 82 Bcf represents



interdepartmental transfers and 124 Bcf is purchased from



gas distributors who in turn buy from interstate pipelines.



     States in the Mid-Continent and Gulf Coast regions



generally burn more gas in power plants than those in



other regions previously discussed.  The Mid-Continent and



Gulf Coast regions contain most of the gas produced in



the U.S., and thus it is not surprising that electric



utilities burn large volumes of gas from intrastate sources.



In this region, only in Missouri and Mississippi do electric



utilities purchase all their gas via interstate pipelines.



Electric utilities in Kansas purchased 63.9 percent of their



gas from interstate pipelines, the remainder coming from



intrastate sources.  Interrtate pipelines provided 92



percent of electric utility gas consumption in Arkansas.



     The states of Oklahoma, Louisiana, and Texas are



characterized by large volumes of gas moving to power plants







I/   Except to the extent that pipeline capacity is unavailable





                         1-13

-------
without passing through FPC jurisdiction.  In Oklahoma



99 percent of the 271 Bcf burned by electric utilities



was purchased from intrastate pipelines.  Electric utilities



in Louisiana burned 369 Bcf of gas in 1973, of which 28



percent came from interstate pipelines.



     Texas utilities burn 37  percent  of  the gas  consumed



by electric utilities in the U.S., and less than 2 percent



of this gas is evidently subject to curtailment by interstate



pipelines.  Virtually all of the electric utility gas in



Texas is sold through gas companies subject to Texas



Railroad Commission regulation.



     Electric utilities in New Mexico acquire over half of



their gas from intrastate sources.  However, total electric



utilities in this state burned but 64 Bcf of gas in 1973.



     Thus, for purposes herein,  the states of Texas, Louisiana,



Oklahoma and New Mexico are treated as predominantly intra-



state markets.  The remaining states are treated as pre-



dominantly interstate markets.



     Chapter II discusses the curtailment policies of



interstate pipelines which will affect the gas available



to the electric utilities they serve.  Chapter III dis-



cusses state policies towards the allocation of gas in



times of shortage.
                            1-14

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                       CHAPTER II

          CURTAILMENTS OF NATURAL GAS SALES BY
              INTERSTATE PIPELINE COMPANIES
     Curtailments of natural gas service by interstate pipe-

lines, reducing in part or entirely deliveries of gas on

certain days to selected classes of customers, and the

resulting similar curtailments by their local gas distri-

butor customers are not new events in gas pipeline history.

Since the early days of the industry, the 1930's, service

curtailments have been employed to achieve the maximum

economic results from the large dollar investment in pipe-

line capacity.  These curtailments may be designated as

capacity curtailments -- reductions in deliveries to certain

customers (generally authorized under contract) when pipe-

line capacity is being fully utilized to serve other cus-

tomers.  Until 1968, gas supply was not a problem.  In

recent years, steadily diminishing supplies of natural gas

have resulted in the need for reduction in deliveries due

to insufficient overall supply rather than lack of pipeline

capacity.

     The history of pipeline and gas distributor service

curtailments starts in the 1940-1950 decade when the great

expansion of the natural gas industry began.   The industry

grew from a supplier of 14 percent of the national energy

requirements in 1947 to 33 percent in 1970.

     This chapter initially deals with traditional gas

pipeline economics which significantly influence the design

of pipeline curtailment plans.  Following this overview

-------
of the gas pipeline industry is "ii analysis of overall



Federal Power Commission policy towards pipeline curtailments.



This chapter concludes with a summary of the effective



curtailment plans for 38 interstate pipeline companies



and the impact of these plans on the availability of gas



for industrial and electric utility use.






A.   Traditional Gas Pipeline Economics






     Most of the discussion that follows has equal applica-



tion to both the interstate pipelines and their local gas



distribution customers.  The most recent annual sales



statistics, for 1973, report that sales for resale by the



major pipelines to gas distributors comprised 90 percent



of total pipeline sales.



     In general, the pipelines and their distributor cus-



tomers supply two kinds of service:  firm or guaranteed



service available on demand on any day, and interruptible



or curtailable service available on days when firm gas


requirements are less than capacity in the case of pipelines,



and less than the total gas supplies the local distributor



can call upon.  Pipeline capacity is designed and constructed



to equal or slightly exceed the estimated peak day require-



ments for firm service.



     Before capacity curtailments became a normal procedure



in pipeline operations and equitable plans for curtailment
                                        *


of service were instituted and enforced, there were problems



similar to those recently arising as curtailments of deliveries



due to gas supply shortages.



                         II-2

-------
     An illustration of pipeline capacity curtailments during

the early development period of the industry and the problems

arising from refusal of some interruptible service customers

to obey curtailment orders is provided in the following com-

ment on page 270 of the report on the Natural Gas Investigation

1944-1946 (Gas Investigation Report):-'

          "It seems reasonable to expect that recent

          experiences with drastic curtailments and

          the resulting chaotic conditions of service

          may have contributed to a better understanding

          of this situation on the part of both the

          supplying companies and their interruptible

          customers."

     The "drastic curtailments and chaotic conditions of

service" referred to in the Gas Investigation Report led to

adoption of restrictions in the late 1940's on addition of

residential and commercial space heating customers in a

number of the gas consuming states.  The restrictions were

imposed by the state regulatory commissions on the local gas

distributing companies until the capacity of the supplying

pipelines under construction (new pipelines or expansion of

existing pipelines) would be sufficient to meet winter

heating requirements.  Rapid development of the interstate

pipeline industry in the 1945-1955 decade permitted state


!_/   Natural Gas  Investigation, Docket No. G-580, Federal
     Power Commission, Report of Commissioner Nelson Lee
     Smith and Commissioner Harrington Wimberly transmitted
     to Congress April 28, 1948.
                             [1-3

-------
imposed restrictions to be lifted and the addition of



space heating loads to be controlled in an orderly pattern



under the construction authorization granted to the



expanding interstate pipeline industry by the Federal



Power Commission.



     The capacity curtailment experience of the pipelines



during the early stages of the pipeline industry was



influenced by the following factors:



     a)   The nature of pipeline service



     b)   Economics of pipeline operation



     c)   Characteristics of demands for natural gas




     d)   Regulation of pipelines under the Natural Gas



          Act, as it applied to rates, tariffs service




          rules and construction authorizations.



Pipeline Services



     Interstate pipelines sell for resale -- wholesale



sales -- (1) to local gas distributors for their retail



sales to residential, commercial, industrial and govern-



mental consumers, and (2) to other interstate pipelines



for resale to local gas distributors and for retail sales



to industrial, commercial and governmental consumers.



Pipelines also sell gas  (depending upon sales policies)



at retail to industrial and governmental customers located



adjacent to the pipeline system -- main line industrial



customers.  In addition, pipelines, if capacity is available,




transport over varying distances the gas owned by other



pipelines and gas owned by local gas distributors and
                             II-4

-------
other parties (e.g., petroleum company gas from the

gas fields offshore to onshore and to inland refineries).

Character of Pipeline Service

     In general, an interstate pipeline offers only two

qualities of service as defined —  below for its sales and

transportation of gas:

     Firm Service

          Service offered to customers (regardless of

     Class of Service) under schedules or contracts which

     anticipate no interruptions of service.  Certain

     firm service contracts may contain clauses which

     permit unexpected interruption in event the supply

     to residential customers is threatened during an

     emergency.

     Interruptible Service

          Low priority service offered to customers

     under schedules or contracts which anticipate and

     permit interruption on short notice, generally

     in peak-load seasons, by reason of the claim of

     firm service customers and higher priority users.—



     Sales for resale to gas distributors and other pipe-

lines include both firm and interruptible service under,


\J   Adapted from 1975 Gas Facts, Appendix A Glossary;
     American Gas Association, Department of Statistics.

2J   Refers to temporary sales of short duration to alleviate
     an emergency and preferred interruptible sales, which
     take precedence over other interruptible sales if
     service is curtailed.

                           II-5

-------
in most instances, separate sales contracts.  Transportation



of gas for others and main line industrial sales may be



firm or interruptible or a combination of both methods;



e.g., firm service up to a specified daily volume and any



additional daily volumes subject to interruption.



Economics of Pipeline Operation



     Interruptible sales are made at lower prices than those



which apply to firm sales to compensate for the lower priority



of service during peak gas demands on the pipeline capacity.



The usual interruptible sales contract requires that the



customer maintain a reasonable supply of other fuel for



heat requirements during periods of gas curtailment.



     The definition of firm and interruptible pipeline



services applies also to the same kind of services rendered



by local gas distributors.



     The economics of natural gas transportation (as well



as distribution) is importantly influenced by the high



degree of capital intensiveness characteristic of the



industry.  Reflecting the relatively large investment in



plant per unit of sales, a large proportion of the overall



annual costs of a pipeline are fixed costs.  Thus, the



volume of throughput for a pipeline has a significant



impact on unit costs.  Also, it is generally accepted that



per unit transportation costs decline when the diameter of



the pipe increases.
                            II-6

-------
     The primary elements involved in the plant invest-

ment of a gas pipeline are pipe and compression.  The

predominant diameter of all main transmission pipelines

was 30-inch in 1972 according to Commission reports.  As

reported in 1974, the cost per mile of pipeline was $100,000

for 24-inch pipe and $200,000 for 30-inch pipe.  Compressor

station costs reported in 1974 averaged $302 per horsepower.

     The following table shows the three major components

of the price of gas paid by consumers in 1973.



          Components of the Burner Tip Price of
                       Gas in 1973

                            (jr/MMBtu    Percent of Total

Field Price                   21*           26%
Transportation Cost           25            32
Distribution Cost             33^            4_2

    TOTAL                     79*          100%

Source:  American Gas Association, Gas Facts.


     Distribution costs comprise the largest portion of

the overall price of gas paid by the ultimate consumer,

followed by transportation costs.  Among final consumers

of gas, there is considerable diversity by consuming sector

in the prices paid -- residential consumers paid on the

average in 1973 125
-------
sales are predominantly high load factor—  sales to

distributors or large industrial plants.

     Nearly three-fourths of the transportation cost reflects

capital items -- taxes, depreciation, interest, and net

income.  With respect to distribution costs, approximately

60 percent represent capital items.

     The design of pipeline rates in part reflects the

large proportion of fixed costs associated with transportation.

Most pipelines utilize a two-part monthly demand and

commodity tariff for their firm service  sales  for  resale

to gas distributors.

     The demand-commodity rate, also known as the "contract

demand" rate, provides the lowest average rate to the local

utility customer for monthly purchases at 100 percent load

factor (i.e., sales to the customer are made at his

maximum daily contract demand on each day of the month).

The average rate increases as the customer's monthly load

factor decreases.

     An illustrative gas pipeline demand-commodity rate

and the effect of the monthly load factor on average rate

are shown on the following page.


\J   Generally refers to the relationship between average
~    (day or month) sales to peak (day or month) sales.
     In the following section,  load  factor and the  nature
     of the gas market are elaborated upon.
                           II-8

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Monthly Rate Per Mcf:

     Demand          $ 3.04 x Billing Demand
     Commodity        30.4* x Total Volume of Gas Purchased

Minimum Bill:

     The monthly demand charge

Billing Demand:

     The contract demand  (Maximum Mcf entitlement per day)

Average Monthly Rate Per Mcf:
Load
Factor
100%
75
50
25
Averaj;
Demand (
10*
13. 3
20
40
ie Rate P(
Commodity
30.4*
30.4
30.4
30.4
;r Mcf
Total
40.4*
43.7
50.4
70.4
     The first part of the demand-commodity rate, the

demand rate, is often a fixed rate -- the same for all months

applied to the billing demand which in most cases is the

maximum daily volume (24 hour volume) the customer is

entitled to receive and the pipeline is required to deliver

on demand.  The maximum volume is called the contract demand

and is measured in units of 1,000 cubic feet (Mcf).  The

monthly demand rate approximates one-twelfth of the allocated

annual demand costs which are composed of a portion of the

annual fixed costs of the pipeline.  Fixed costs consist

of the investment costs, amortization, depreciation and

depletion taxes and return on investment in facilities

and any operating expenses that do not vary with month

to month sales volumes.
                            11-9

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     The commodity rate consists of the remaining portion



of the annual fixed costs plus all variable costs such as



cost of gas purchased from producers and other operating



expenses that vary with month to month sales.   It is applied



to monthly sales volumes measured in Mcf.



     The minimum monthly bill is usually only the total



demand charge (rate x billing demand) but in some instances



may require a commodity charge in addition to the demand



charge, equal to monthly purchases at 60 to 90 percent load



factor.



     The cost classification and allocation to determine



the demand and commodity costs is based upon a "test year" -



a 12-month period reflecting actual experience and known



future sales and costs.  In pipeline rate cases Commission



approval is required of the final classifications and allo-



cations whether or not the rates are determined by public



hearing or by informal settlement agreements between the



pipeline, the customers and other intervenors, and the



Commission's staff.



     In the early 1950's, the Commission in a pipeline



rate case of the Atlantic Seaboard Gas Company adopted a



cost classification and allocation that has remained a



standard for the pipeline industry and is known as the



Atlantic Seaboard Allocation.  In general, pipelines have



been required to classify and allocate costs in accordance



with the Atlantic Seaboard procedure.  Demand and commodity
                            11-10

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rates could depart from the allocated costs if good cause



were shown 	 such as loss of large firm industrial loads



by the local gas utility customers to a competitive fuel



supply.  The principal feature of the Atlantic Seaboard



cost allocation was the classification of fixed costs -- 50



percent to demand costs and 50 percent to commodity costs.



     The 50-50 classification tended to reduce demand rates



and increase commodity rates since in prior years most



fixed costs had been classified by utilities as demand costs,



especially in the electric utility industry for large com-



mercial and industrial sales.   The underlying theory for



the demand-commodity rate form contemplated that all fixed



costs would be recovered by the fixed monthly demand rate



and only variable costs would be assigned to the commodity



rate.  The increase in commodity rates by the Seaboard



classification resulted in greater costs being assigned to



interruptible service with consequent higher rates to



both main line industrial customers of the pipelines and



interruptible industrial customers of the local gas utilities



The local gas utilities as a policy, have used the commodity



rate charged for gas purchased from the pipeline supplier



as the base on which to construct rates for industrial



customers receiving interruptible service.



     In the past two years, 1973 and 1974, because of the



gas supply shortage the Commission has been requiring that



the demand and commodity rates level be not less than the
                            11-11

-------
costs obtained under the Seaboard classification -- a re-



versal of previous tolerance of departures.  Also,  there



have been indications that the Commission may require 75



percent instead of 50 percent of the fixed costs to be



assigned to commodity costs and to commodity rates.  The



purpose is to raise the level of interruptible industrial



rates, pipeline and distributor, so as to approach the



prices of the alternative fuels, oil and coal.



     Sales of gas by the interstate pipeline supplier



to the local gas distributors for resale are governed



by the two key documents filed with and accepted by



the Federal Power Commission, and kept up to date by



similar filings and acceptance of additions and revisions.



The key documents are the effective pipeline tariff



and the sales contract or contracts which are designated



by the Commission as service agreements.  The pipeline



company tariff is required to provide a standard form



of sales contract for all customers, separately for firm



service, interruptible service, and other services, such



as storage, winter service, and transportation only of gas



     The sales contract for firm service covering most



of the gas sold is also illustrative of the contracts



for the other services.  Under the standard form, the



contract with each firm service customer incorporates by



reference to the effective pipeline tariff, (1) the



currently effective rate schedule and (2) the General
                             11-12

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Terms and Conditions of service which comprise among



others, gas quality standards, measurement of gas quantities,



meter error adjustments, billing and payment, determination



of quantities delivered, e.g., where both firm and inter-



ruptible service is purchased through one meter on the same



day; and the gas curtailment plans and policies.



     Also under the standard form contract but with



variations among the customers, are the maximum daily



quantities of gas to be delivered (usually designated



as the contract demand), the location of delivery points, the



pressure of the gas delivered at each point, and the



term of service of the sales contract.



     The initial contract term of service is almost



universally for 20 years.  The contract automatically



extends from year to year unless advance notice of



termination by either party -- usually 12 to 24 months --



has been given.  Generally, an addition or reduction in



contract demand agreed upon by the parties is implemented



by a new 20-year contract for the revised quantity.  The



pipeline supplier can not discontinue or reduce contract



deliveries when the contract terminates without Commission



authorization as provided under Section (7)  (b) of the



Natural las Act - Abandonment of Service.   (Curtailment"



of deliveries because of the gas shortage is not subject



to Section (7) (b) of the Act as interpreted by the



Commission and the courts.)
                            11-13

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     The gas distributor generally can terminate the contract



at the end of the term although the Commission may as a



practicable matter prevent termination, in the public interest



after hearing, by denying authorization for service to a



new supplier.




Characteristics of Demand for Natural Gas



     The traditional characteristics of service by pipeline



systems reflect in part the nature of distribution economics



which are in turn related to the seasonal characteristics



of demand for natural gas.  Particularly with respect to



the relative stability or seasonal fluctuation of demands,



it is necessary to distinguish among the classes of use.



     The seasonal consumption of gas, both in the composite



and for the sectoral distribution, is not uniform through-



out the year.  Space heating sales, which represent a large



proportion of residential and commercial demand, are



seasonal in nature, resulting in low-load factors (average



day -^ peak day) for residential and commercial requirements.



     On the following page is a chart showing monthly



distributor sales of gas in the United States by sector



for the year July 1972-June 1973.   From this chart the



seasonality of residential and commercial sales is quite



apparent, with the preponderance of sales occurring in



the October to March period.  The "All Other" category on



the chart is primarily industrial and electric utility, both
                             11-14

-------
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-------
firm and interruptible.   These categories are not separated



by the source.   However, firm industrial sales generally



follow a seasonal pattern similar to residential and com-



mercial sales,  although not nearly to the same degree.  In



part, interruptLble sales offset this seasonality by occurring



predominantly in the period May to October.   The combination



of firm and interruptible industrial sales has traditionally



resulted in relative seasonal stability for sales to the



industrial sectors.



     Importantly, interruptible sales also contribute addi-



tional revenues to pipelines and distributors without



significant additional investment.  Due in part to the



contribution of these revenues, prices to firm customers



have been lower than they would have been otherwise.



     By definition and general practice, interruptible sales



have been curtailed for many years during periods in which



firm demands were high.   These were, as has been noted



previously, capacity curtailments and considered normal



operating procedure.



Regulation Under The Natural Gas Act



     Federal regulation under the Natural Gas Act over the



interstate pipelines since 1938 and over the sales of gas to



them by the gas producers since 1954, has an indirect but



important impact on gas curtailments.
                            11-16

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The Act which became effective in 1938 delegates the Federal



regulation to the Federal Power Commission (Commission)



which also regulates interstate movement and sales of



electricity.   By U.S. Supreme Court decision in 1954 the



sales for resale in interstate commerce, i.e., the present



and future sales to the interstate pipelines by gas pro-



ducers, became subject to the Act and regulation by the



Commission.



     Regulation under the Act is limited to the transporta-



tion and sale for resale of gas in interstate commerce.



     Retail sales of gas by local gas distributors are regulated



by the State Regulatory Commissions.   Mainline industrial sales



(retail sales) of the interstate pipelines are subject under



the Act to the transportation jurisdiction of the Commis-



sion but not to its sales and price regulation.  Under



the Act, licenses for exports and imports of gas to and



from foreign countries are under the  jurisdiction of the



Commission subject to agreement with  Commission actions by



the Departments of State and Defense.



     Sections 4 and 5 of the Act, the "rates and charges"



sections, and Section 7, the sales and facilities authoriza-



tions section, affect the curtailment of service policies



and practices of the interstate pipelines and therefore of



the state regulated local gas distributors that are depen-



dent for gas supply on the pipelines.
                            I 1-17

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     Under the Act and the Commission's rules and regula-

tions to implement it, the interstate pipelines (natural gas

companies) are required (among other requirements)  to keep

on file with the Commission and to have available at their

business offices for public inspection, their rate schedules

that are currently in effect.   The separate schedules are

compiled in a book form designated as the tariff of the

company.  As noted previously the tariff contains the

applicable curtailment plan of the interstate pipeline and

other pipeline service provisions.

     The purpose of the filing and availability for public

inspection is to assure the equal treatment of their cus-

tomers provided for in Section 4(b) of the Act:

          "No natural gas company shall with respect
     to any transportation or sale of natural gas
     subject to the jurisdiction of the Commission,
     (1) make or grant any undue preference or
     advantage to any person or subject any person
     to any undue prejudice or disadvantage, or (2)
     maintain any unreasonable difference in rates
     charges, service, facilities, or in any other
     respect, either as between localities or as
     between classes of service."


     The following table contains the most pertinent

Commission regulations applicable to r?te schedules,

tariffs and the implementation of Section 4(b).
                            11 -1:

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                Selected Regulations  and Definitions  of  the
                Federal  Power  Commission Under  Section  4  of
                The  Natural  Gas  Act.
             IN GENERAL
§154.21  Effective tariff.
  The  effective tariff of a. natural-gas
company shall be the tariff filed pursuant
to the requirements of this  part, and
permitted by the Commission  to become
effective   No natural-gas company shall
directly or indirectly, demand, charge or
collect any rate or charge for  or in con-
nection with the  transportation or sale
of natural gas subject to the jurisdiction
of the Commission, or impose any classi-
fications, practices,  rules or regulations.
different from  those  prescribed  in  its
effective  tariff  and  executed  service
agreements on file with the Commission.
unless  otherwise specifically provided by
order of the Commission.
I Order 144, 13 PR. 6371. Oct 30. 1948, 13 F.R.
6838, Nov  20, 1948]
§ 15V.22  Notice requirements.
  All tariffs, and contracts or any parts
thereof shall be filed with  the Commis-
sion and posted not less than thirty days
nor  more than sixty days prior to  the
proposed effective date thereof unless a
different period of time is permitted  by
the  Commission  in  accordance  with
§ 154 51.   Provided, however, That  no
natural-gas company  shall file  under
this part any new rate schedule or con-
tract for the performance of any service
for which a certificate of public con-
venience and necessity must be obtame'
pursuant to section 7ic> of the  Natur
Gas Act, until such certificate has bee
issued.   Nothing  herein shall be con-
strued  as  preventing  the natural-gas
company  from  entering into  any such
agreement prior to the  granting of such
a certificate
I Order 144. 13 PR 6371. Oct 30 1948. 13 P R
S838. Nov 20. 1948|
§ 154.23  Acceptance  for  filing not  up.
     proval.
  The acceptance for filing of  any  tariff.
contract or part thereof is not to be con-
sidered  as approval by  the Commission.

(Order 144. 13 F:  6371, Oct. 30. 1948; 13 F R.
6838. Nov  20. 1948 |
 § 154.11
   DEFINITIONS
Rate schedule.
  The term  "rate  schedule"  means  a
statement of a rate or charge for a par-
ticular classification of transportation or

 sale of natural gas subject to the juris-
 diction of the Commission, and all terms.
 conditions,   classifications,  practices.
 rules and regulations affecting such rate
 or charge.  This term also includes any
 contract for which  special permission
 has  been obtained in  accordance with
 § 154.52.
 (Order 144, 13 F R 6371. Oct. 30, 1948; 13 F.R.
 6838, Nov  20. 1948 ]
 § 154.12  Contract.
   The term "contract" means any agree-
 ment which  in  any  manner affects  or
 relates to rates, charges, classifications,
 practices, rules, regulations or  services
 for any transportation or sale of natural
 gas  subject  to the jurisdiction  of the
 Commission.  This term includes an ex-
 ecuted service agreement.
 (Order 144, 13 F R 6371, Oct. 30, 1948; 13 F.R.
 6838, Nov  20. 1948)

 § 154.13 Service agreement.
   The term  "service  agreement" means
 an  unexecuted form of  agreement  lor
 service under a natural-gas company's
 tariff.
 (Order 144. 13 FR 6371. Oct 30, 1948. 13 F R.
 6838, Nov. 20. 1948(
 §154.14  Tariff or FPC gas tariff.
   The term  "tariff" Or  "FPC gas tariff"
 means a compilation, in book form, of all
 of the effective rate schedules of a partic-
 ular natural-gas company, and  a copy
 of each form of service  agreement.
 (Order 144. 13 F R 6371, Oct 30, 1948. 13 F.R
 6838. Nov  20. 1948!

  154.15   Filing date.
   The term "filing date" means the day
 on  which a  tariff  or part thereof or  a
 contract  is received in  the office of the
 Secretary of  the Commission for filing
 in compliance with the requirements  of
 this part.
 (Order 144. 13 FR  6371, Oct  30. 1948. 13 F.R
 6838, Nov 20, 1948 |

 § 154.16  Porting.
   The term "posting" means (a) making
 a copy of a natural-gas company's tariff
 and contracts available during regular
 business  hours for public inspection  in
 a convenient  form and place at the nat-
 ural-gas company's offices where business
 is conducted with affected customers and
 (b) mailing to each customer affected  a
 copy of such  tariff or part thereof  at
the time  it is sent to the Commission
for filing.
(Order 144. 13 F R  6371, Oct 30, 1948. 13 F R
6838. Nov 20 1948 |
Source:    Regulations  Under  The  Natural  Gas  Act,   Part   154,
             Federal   Power  COIPTI i <^= i on

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     Regulations especially pertinent to interstate pipeline




sales for resale and service curtailments are in Sections



154.21 and 154.11.   The prices or rates and the curtailment



policies and practices are to be only those in the current



tariff.   Public and customer inspection of the rate schedules,



tariffs  and sales contracts is provided in Section 154.16,



Posting.



     The regulations were instituted in 1948 by the various



Commission orders.   These no doubt have helped to prevent



reoccurrence of the "recent experiences with drastic cur-



tailments and the resulting chaotic conditions of service"



referred to in the  Gas Inves igation Report.




     Many recent FPC curtailment hearings have been in-



stigated when the pipelines filed their curtailment plans



pursuant to Section 4 of the Act and the Commission's regul-




ations .



     Mainline industrial sales of the pipelines, firm



and interruptible,  are not covered by the regulations



quoted in part in the table since these are not sales



for resale subject  to Commission jurisdiction.  However,



copies of the sales contracts with large mainline customers



(50 million cubic feet annually and over) are required to



be filed with the Commission under Section 155 of the



Regulations and a full report on all but very small



customers, inclusive of sales volumes, revenues, average



price and type of service is required in the pipeline



companies' annual report of operations (FPC Form 2) to



the Commission.





                         11-20

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     Section 5 of the Act enables the Commission to hold



public hearing and investigate upon its own motion or upon



complaints of local gas distributors, municipalities,



state regulatory commissions or States directed against



any rate, charge rule, practice or classification in a



pipeline company's tariff.  If after the investigation



and hearing the Commission finds any of the above to be



unjust, unreasonable, unduly discriminatory or preferential



the Commission shall order the remedy needed.



     Subsequent to Commission acceptance of a tariff filing,



relatively few hearings over the years have been initiated



pursuant to Section 5 by gas distributors or state authorities



However, the gas shortage curtailment plan filings have



resulted in more such complaints.



     The pipeline may not attach a new mainline industrial




customer without first obtaining Commission authorization



as provided under Section 7 of the Act.  This limited



control over mainline sales derives from Commission



jurisdiction over all interstate transportation of gas.



     Section 7 of the Act in general requires authorization



(Certificate of Public Convenience and Necessity) for



construction or extension of interstate pipeline facilities



and the transportation or sale of natural gas by such



facilities in interstate commerce inclusive of new pipelines



and expansions of existing pipelines.



     Under Section 7(e) of the Act, a pipeline applicant



must demonstrate that its request "is or will be required



by the present or future public convenience and necessity




                            I r- ^-i

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and that the applicant is willing to do the acts and to



perform the services proposed..." -- otherwise the application



will be denied.




     A public hearing on all applications  except  for minor



facilities is required with reasonable notice to all.



"interested persons," such as adjacent and possibly



competing pipelines, gas distributors, municipalities



along the pipeline route, land owners, state and federal



agencies that may be interested, and others.



     In the absence of an overriding vital objection in



the public interest, such as in recent years environmental



impact, the certificate application will be granted by



the Commission if three principal tests are satisfactorily



met:  (1) adequate gas supplies, (2) adequate markets  for



the new gas sales and (3) the economic feasibility of



the project.



     The economic feasibility test has affected interruptible



industrial sales and the resulting curtailments of service.



Under this test, in addition to the overall cost of the



project and the method and cost of financing the



investment in facilities, the pipeline applicant is required



to show sufficient revenues from the new or expanded



sales -- sales for resale to local distributors and main



line industrial sales -- to meet all costb and provide a



reasonable return on the investment.
                             11-22

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     Revenue sufficiency in the case of an existing pipe-



line would generally mean that the new or additional sales



would pay the incremental cost of the new facilities and



would not require rate increases to existing customers



who are not receiving a benefit from the expansion.  In



general, to achieve the necessary revenues, new or



expanded industrial sales are required to offset winter



space heating sales.  In other words, the sales to the



new customers and the increase in sales to existing



customers should be made at reasonably high load factors



so that the gas rates charged in the local markets will



not be so high as to discourage market growth.   As an



example, because of a lack of a local manufacturing



industry, the sales proposed in a Section 7 proceeding by



a potential new distributor customer of a pipeline may be



limited to only residential and commercial consumers and



be principally space heating.



     The very low load factor of the space heating sales



(25 to 30 percent) may require such high rates  for gas



that only a few domestic and commercial customers would



convert from oil or coal to gas fuel.  The addition of



large interruptible industrial sales would greatly improve



the load factor, reduce the local rates and enhance the



opportunity for market growth.



     Other notable provisions of Section 7 of the Act



are 7(a) and 7 (b).  Section 7 (a) provides that  the Commission,



subiect to certain restrictions, may order a pipeline under





                             11-23

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its jurisdiction, after notice and opportunity for hearing,




to sell gas to a local distributor,  municipally or privately



owned, that the pipeline has voluntarily refused to service.



Section 7(b) provides that a certificated sale of gas may



not be abandoned by a pipeline or gas producer without first



obtaining the Commission's permission.   Other important



parts of Section 7 provide for temporary certificates



(these are also subject to Section 7(b) above) and the



Commission's power to attach "reasonable terms and conditions"



to the certificates issued.



     During the 20 years, 1950 through 1969 -- a period of



spectacular expansion for the natural gas utility indus-



try -- the Commission issued over 4100 certificates for more



than 150,000 miles of interstate pipelines. These authoriza-



tions for sales to new and expanded markets are indicative




not only of the growth of the industry but also of certifi-



cate applicants' success in meeting the economic feasibility



test, an important part of which is the addition of indus-



trial sales for load factor improvement -- including both



firm and interruptible sales.



     Historically, the state regulatory commissions may



not have approved but did not oppose interruptible indus-



trial sales by intrastate gas distributors.  In general, the



higher load factors of these sales and the net revenues



earned served to reduce rates charged for domestic service.
                             11-24

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The lower rates for interruptible sales of gas for boiler

fuel as compared with competitive fuels helped to reduce

costs of local electric power generation and also helped

to reduce air pollution which would have resulted if

high-sulfur alternative fuels were burned.
B.    The Development of Federal Power Commission Policy
     Concerning Gas Supply Curtailments
     The pipeline capacity curtailments of interruptible

industrial sales as needed continued as the only regular

service reductions until 1970.  Firm service had been un-

affected over the years and gas supplies for market growth

were ample.  Until 1968, gas reserves increased despite the

annual 6 percent increases in the gas production.

     Interstate pipeline reserves and production which com-

prised over 60 percent of the Lower 48 States reflected the

national pattern:  reserves decreased from 198 Tcf (1967) to

134 Tcf (1973) and production increased from 11.8 Tcf (1967)

to 14.2 Tcf (1972) but dropped to 13.7 Tcf in 1973.

     The impact of the lessening supplies of natural gas was

not really apparent until late 1970 when the first major

pipeline curtailment case was brought to the Commission.

Seven major pipelines curtailed service for the first time

in the winter 1971-1972 because of gas supply shortages.
                            11-25

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Design of End-Use Priority Curtailments

     The Commission required the pipeline companies to file

as a part of their effective tariffs any proposed curtail-

ment of service plans they instituted as a result of short

supplies.  After analysis of the filings of 24 pipelines

between 1969 and 1972, the Commission on January 8, 1973 in

rule-making Docket No. R-469 issued a Statement of Policy

Order No. 467 —  which prescribed nine priorities of service

based upon end-use of gas by the ultimate consumers that are

to be followed by the interstate pipelines when they curtail

gas service to their customers.

     The nine service priorities are shown below:



END-USE OF GAS DURING CURTAILMENT - PRIORITY DESIGNATIONS

     1.   Residential, small commercial (less than 50
          Mcf on a peak day).

     2.   Large commercial requirements (50 Mcf or more
          on a peak day), firm industrial requirements
          for plant protection,  feedstock and process
          needs, and pipeline  customer storage injec-
          tion requirements.

     3.   All industrial requirements not specified in
          (2), (4), (5), (6),  (7), (8) or (9).

     4.   Firm industrial requirements for boiler fuel
          use at less than 3,000 Mcf per day, but more
          than 1,500 Mcf per day, where alternate fuel
          capabilities can meet  such requirements.


I/   As amended by Orders Nos. 467A and 467B.


                         11-26

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     5.   Firm industrial requirements for large volume
          (3,000 Mcf or more per day) boiler fuel use
          where alternate fuel capabilities can meet
          such requirements.

     6.   Interruptible industrial requirements of more
          than 300 Mcf per day, but less than 1,500 Mcf
          per day, where alternate fuel capabilities
          can meet such requirements.

     7.   Interruptible requirements of intermediate
          volumes (from 1,500 Mcf per day through 3,000
          Mcf per day), where alternate fuel capabili-
          ties can meet such requirements.

     8.   Interruptible requirements of more than 3,000
          Mcf per day, but less than 10,000 Mcf per day,
          where alternate fuel capabilities can meet
          such requirements.

     9.   Interruptible requirements of more than 10,000
          Mcf per day, where alternate fuel capabilities
          can meet such requirements.

     Curtailment would start with Priority 9 and proceed in

reverse order to Priority 1, residential and small commer-

cial service -- the last class of customers to be curtailed.

The end-use priorities apply to all sales by a pipeline:

sales for resale to local gas distributors and other pipe-

lines and retail sales to main line industrial customers.

     For example, each local gas distributor will provide

the pipeline supplier with the daily volumes of gas needed

in the winter and in the summer months to supply its consumers

arrayed in accordance with the nine service priorities.  The

pipeline supplier will composite these for all of its local

gas distributor customers and for all pipelines that it

serves -- the pipeline buyers having made the same deter-

minations and composites for their customers.   Next, the


                         11-27

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pipeline supplier's own main line industrial sales will be

added to the distributor and pipeline composite require-

ments.   The overall total daily winter and summer sales of

the pipeline supplier will thus be arranged by nine prior-

ities and curtailment orders will be issued starting with

Priority 9.

     Order 467 provided the following instructions on the

scope of the Commission's nine service priorities, excep-

tions to their observance and method of operation under the

priorities during periods of service curtailments:

          "The priorities-of-deliveries set forth above
     will be applied to the deliveries of all jurisdic-
     tional pipeline companies during periods of curtail-
     ment on each company's system:   except, however,
     that upon a finding of extraordinary circumstances
     after hearing initiated by a petition filed under
     Section 1.7(b) of the Commission's Rules of Practice
     and Procedure, exceptions to those priorities may
     be permitted.

          The above list of priorities requires the full
     curtailment of the lower priority category volumes
     to be accomplished before curtailment of any higher
     priority volumes is commenced.   Additionally, the
     above list requires both the direct* and indirect
     customers* of the pipelines that use gas for similar
     purposes to be placed in the same category of priority.
          Mainline industrial and other retail customers
          of the pipeline are "direct" customers.   The
          customers of the local gas distributors  supplied
          by the pipeline are "indirect" customers.
                         II-2!

-------
     Policy statements such as Order No.  467 are issued

infrequently to give notice to the companies under the

Commission's jurisdiction of the policies that will be

followed in the future concerning specific important and

generally controversial subjects that it  will decide.

Excerpts from Order No. 467 that explain  the Commission's

reasons for the end use service priorities follow:

          "The curtailment procedures to  be followed
     must have as their basic objective the protection
     of deliveries for the residential and small volume
     consumers who cannot be safely curtailed on a daily
     basis and requiring, as the initial  level of cur-
     tailment, reduction in deliveries for large volume
     interruptible sales."

     The Commission then quoted as follows from its decision

of January 5, 1973 in the Arkansas-Louisiana Gas Company

curtailment proceeding (Opinion No. 643 Docket No. RP71-122)

in regard to end-use of gas by the consumer and interrup-

tibles and firm service priorities:

          "We are impelled to direct curtailment on
     the basis of end use rather than on  the basis of
     contract simply because contracts do not neces-
     sarily serve the public interest requirement of
     efficient allocation of this wasting resource.
     In time of shortage, performance of  a firm con-
     tract to deliver gas for an inferior use,  at the
     expense of reduced deliveries for priority uses,
     is not compatable with consumer protection.

          Secondly, we have determined that interrup-
     tible sales are for the most part, predicated on
     end-use considerations; those customers,  be they
     direct sales or indirect sales, who  require gas
                          11-29

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for human needs service or non-substitutable indus-
trial service do not contract on an interruptible
basis.  Interruptible service, at the lower rates
charged for such service envisions interruption.
And accordingly, interruptible customers can most
reasonably be expected to have alternate fuel facil-
ities already operational.  We conclude, therefore,
that curtailment should first fall on those who have
not historically borne the full-fixed costs of pro-
viding gas service, particularly since these customers
are best prepared to accept interruptions in service
and clearly do not require uninterrupted service for
protection of life or property.

     Finally, if curtailment reaches beyond the
level of interruptible service into firm contract
service, we commit ourselves to  the proposition
that large volume boiler fuel usage is inferior
and should be curtailed before other firm service.
Aside from the established physical fact that com-
bustion of natural gas for raising steam in boilers
and its subsequent conversion into electricity or
mechanical energy results in a loss of roughly
two-thirds of the heating value  of the gas used --
which we regard as unacceptably  inefficient in time
of shortage -- we note also that those who "se gas
as boiler fuel generally can substitute other fuels
more readily and at lower overall cost than other
gas users; additionally, pollution control is more
practical because of the large size of individual
installations.  Other fuels generally can be physically
substituted in large boiler fuel application with
less inconvenience and less possible adverse con-
sequences than in other industrial applications,
such as direct fired uses, and other uses demanding
precise temperature control, flame characteristics,
instantaneous response and atmosphere quality.
Finally,  subordinating boiler fuel use with its
comparative ease of substitutability, to other large
scale industrial and commercial  uses should tend to
minimize plant and business closings and the attendant
economic loss from decreased production and payrolls,
and the other personal hardships of unemployment
[Footnote omitted].

     In establishing the priorities-of- service for
the use of the natural gas supply, it is obvious that
some direct and indirect customers use their supply
of natural gas for similar end-use purposes. Customers
                     11-30

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     with similar usages  for the fuel should be accorded
     the same treatment to avoid any undue discrimination
     or preference among them.   Accordingly, we will place
     the direct and indirect customers in the same priority-
     of-service position as when their use of natural gas
     is comparable.

          In determining our priority-of-service listing,
     we are cognizant of the economic impacts that will
     flow from that listing.  However, we believe that we
     have no choice but to impose certain restrictions
     on the sale of natural gas within the limits of
     our jurisdiction during this time of supply shor-
     tages.  Our decision is made with full knowledge
     that certain sales to ultimate customers are beyond
     our jurisdiction.  In those instances, we solicit
     the cooperation of State authorities to aid imple-
     mentation of this program.

     The Commission also issued two rule making dockets,

Docket Nos-R-467 and R-468 to obtain comments on four pro-

posals that may be adopted in the future and on certain

changes proposed in its regulations to collect end-use

data and implement the service  priorities:

          Further, we are cognizant of the necessity
     for a continual review and implementation of pol-
     icies as will forestall or hopefully preclude
     other pipeline companies from attaining similar
     shortage problems on their system and to promote
     the most efficient use of  this natural resource
     during this time of short  supply.  To these ends,
     we solicit comments on several alternatives which
     may be considered in arriving at a rational solu-
     tion to the optimum allocation of limited gas
     reserves at a time of shortage.

     Only the first alternative or proposal is quoted be-

cause of its relevance to past  Commission actions in regard

to rate design and cost allocations:

          (1)  Pipeline rates have been designed, in
     part,  on the basis of economics.  Thus, certain
     rates have been approved that encouraged indus-


                          11-31

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     trial sales, which sales, in today's view, would
     be placed in a low priority status.  Such rate
     design techniques will be reviewed to meet today's
     supply situation and should encompass such matters
     as elimination of conjunctive billing, modification
     of the Seaboard formula,  separate rate for jurisdic-
     tional industrial service,  elimination of annual
     contract demands and, in lieu thereof, the use of
     monthly or seasonal demands, and any other aspects
     of rate design relating to  the principles of con-
     servation of natural gas supply within the concepts
     set forth above.

     The three other proposals dealt with minimum bills

under gas producer contracts,  end-use of gas imported from

foreign countries and requiring  the pipeline companies to

supply a complete market study that would reflect end usage

of their sales.

     The nine service priorities established by the Commis-

sion leave to the pipelines the  method of implementing the

priorities during curtailment periods.  In general, the

following preliminary steps by the pipeline supplier are

needed:

     1.   Collect the end-use data from their distrib-
          utor and mainline industrial (direct) custo-
          mers arranged by the nine priorities of ser-
          vice.

     2.   Establish the 12 monthly total gas volume
          entitlements and maximum daily volume require-
          ments in each month, for each customer.  In
          general, these volumes would be the actual
          deliveries to the customer in a 12-month
          period before the gas  supply became defici-
          ent; i.e., 1969 or 1970, with some allowance
          for residential and small commercial load
          growth during subsequent years.

     3.   Array the gas volume data in (2) for each
                          11-32

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          customer in accordance with the nine service
          priorities.

     4.    For each of the 12 months, usually separated
          into winter and summer six-month periods, es-
          timate the total supply of gas available to
          the pipeline company.

     The company then would have available (a) the total monthly

gas requirements and the maximum daily gas requirements dur-

ing each month for each customer divided into the nine ser-

vice priorities and (b) the total monthly gas supplies.  The

difference between the total gas supply and the total re-

quirements for each month is the monthly supply deficiency

or the volume of gas to be curtailed during a particular

month.

     The curtailment volume in any month will be prorated

daily to each customer's requirements in reverse order of

the nine service priorities -- starting with Priority 9,

curtailing all deliveries in that priority before any deliv-

eries are curtailed in Priority 8 and following the same pro-

cedure up through Priority 1 if necessary.

     The composition by priorities of the customer's maxi-

mum daily needs in each month is important since a customer

on his own account may normally curtail completely low pri-

ority boiler fuel sales during days of severe winter weath-

er to protect domestic space heating requirements (Priority

1) and hence should not be ordered by the pipeline supplier

to curtail gas on such days.  On other relatively warm winter
                               11-33

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days the same customer may supply all nine priorities of

service and should be curtailed as indicated above.

     If the actual gas supply for a month is more or less

than the estimate, the daily curtailment volumes will be

adjusted accordingly.  In general, no change in curtailment

will be permitted for variances in customer requirements

determined in the base period. —

     The assignment of customer gas requirements to the

nine priorities of service may cause disagreement among the

customers or between the customers and the pipeline supplier.

In this event, the matter may be brought to the Commission

for hearing and decision.

     It is important to note that a pipeline's curtailment

plan is a method of allocating gas to its customers, but

does not necessarily result in a specified level of consump-

tion at the burner tip.  Most of an interstate pipeline's

sales are in turn sold by the pipeline's distributor customers.

Under a curtailment program, the amount of gas which a

distributor has to sell is directly influenced, but the

sectoral distribution of the distributor's actual sales

may differ from that which is implied by the curtailment

method of the pipeline.  For example, a distributor may have
!_/   There is some controversy concerning the issue of
     requirements based upon base period data.   The question
     is whether or not to periodically update base period
     data to reflect market conditions.
                         11-34

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sources of gas supply other than purchases from the interstate



pipeline, such as direct purchases from producers, synthetic



gas, or propane-air mixtures.  The distributor may also be



buying gas from two or more interstate pipelines with differing



curtailment plans in effect.  Moreover, the distributor's



market structure may have changed somewhat from that which



would be indicated in the historical base period data upon



which the curtailment plan relies.



     Order No. 467 was subjected to considerable criticism



by pipelines, local gas distributors, industrial consumers,



states and trade associations.  Most agreed, however, that



the end-use concept was proper.



     The following are among the more critical comments:



the firm and interruptible service classifications are not



defined the same throughout the industry so that an identical



end use could be classified either way, e.g., in Priority 5



or Priority 8; size classification should not be a factor --



only end use; end use of boiler fuel should be considered, e.g.,



boiler fuel for heating hospitals; sets nationwide priori-



ties without considering varying conditions including avail-



ability of alternate fuels, patterns of reliance,  prior



investment by consumers in expectation of adequate gas



supplies, prior investment by gas distributors in  supple-



mental gas facilities.





                         11-35

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     The following  table,  which shows the percentage composi-

tion of the regulated  gas  utility industry market since 1950,

is illustrative of  the potential for severe economic impact

through loss of industrial sales and revenues under the

priority of service  curtailments:

        REGULATED GAS UTILITY  ANNUAL SALES BY SERVICE CLASS,
                PERCENT OF TOTAL SALES,  1950-1973

Year
1950
1955
1960
1965
1970
1973
Residential
Priority 1
33
34
34
33
31
30
Commercial
Priorities 1 & 2
10
9
10
11
13
14
Industrial
Priorities 3-9
54
53
51
51
53
51
Other
Priority 2
3
4
5
5
3
5
Source:  American Gas Association, 1973 Gas Facts.



     Severe reductions  in  industrial sales of local gas

distributors and main  line industrial sales of the pipeline

will have a substantial  impact upon local employment.

Moreover, a reduction  in industrial sales by the local

gas distributors because of the service curtailments

will require rates  for  residential and commercial sales  to

be increased to recover  costs of service.  Lower sales to

the gas distributors will  reduce the load factors of the

pipeline suppliers  and  require rate increases to the local

distributors.
                              11-36

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     Schedule II-l shows for each reporting interstate pipeline




the total volumes of firm gas service curtailed during the years



1970 through 1974, and the percentages that the curtailments are



of annual firm requirements.  In 1970, five companies cur-



tailed firm service, increasing to twenty-two in 1974. Ex-



cluding intercompany curtailments, curtailments increased



from 18 Bcf in 1970 to 1679 Bcf in 1974.   Not shown on this



schedule are a number of pipelines which have not as yet



curtailed firm requirements.



     Similar data are not available for interruptible



service curtailments during the 1970-1974 period.  However,



for the twelve months ended August 1974,  total interruptible



service curtailments were 248 Bcf, or 38 percent, of "normal"



interruptible service requirements; i.e., interruptible sales



that would be made if gas supplies were available but ex-



cluding normal capacity curtailments.







C.   Current Curtailment Plans of 38 Interstate Pipelines







     As a result of the gas shortage, many pipelines are



not able to fulfill their contracts to sell gas.   Thus their



curtailment plans pertain to a very pragmatic problem -



the day-to-day and/or month-to-month allocation of insufficient



supplies to their customers, occasionally numbering in the



hundreds.  The development of curtailment plans,  the hearings,





                        11-37

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and ultimate acceptance by the FPC have been time consuming

and controverted processes, and are expected to continue

into the indefinite future.

     Schedules II-3, II-4, and II-5 give specific case histories

for three major interstate pipelines, directly or indirectly

supplying gas ultimately used by electric utilities on

the West Coast, East Coast and Louisiana and Mississippi.

These case histories indicate the complexities of curtailment

procedures.

     Because of the different markets served by various

pipelines as well as different supply situations, many of

the curtailment plans in effect differ among themselves and

from the guidelines promulgated by the FPC.  ScheduleII-2

shows the status as of March 1975 of the curtailment plans

of 38 interstate pipelines for which data are available.

     The 38 pipelines studied are representative of the

interstate pipeline industry since 27 of the 34 companies

classified as "major" pipelines are included.—   The 27

major pipelines accounted for 98 percent of the city-gate

sales (i.e., sales to local gas distributors) and 77 percent

of the mainline direct sales by interstate pipelines in 1974.
\J   The remaining 7 of the 34 companies do not sell gas
     to local gas distributors or make direct industrial
     sales.  The companies either sell only to other
     interstate pipelines or function solely as storage
     or transportation companies.
                             11-38

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     Schedule II-2, Column (1) identifies the pipelines and



the geographical regions in which their sales are made.



Column (2) indicates by the letter "X" the 27 pipelines



classified as major.  Column  (3) shows the docket numbers



assigned chronologically to the curtailment plans as they



were filed in response to Commission order.  Columns (4)



through (6) designate the type of curtailment plan in



effect on March 1, 1975 -- FPC end use, pro-rata by sales



contract volume or other method.  Columns (7) and (8)



show the effective date and where applicable the expiration



date of the filed curtailment plans.



     Columns (9) through (13) show the principal reasons



that plans other than the FPC end-use are under investigation,



Column (14) for other than the FPC end-use plan shows



whether interruptible service is the first to be curtailed --



except for small industrial sales, the FPC plan provides for



curtailment of all interruptible service before firm service.



Column (15) provides brief descriptions of the curtailment



plans other than the FPC end-use plan.



     Schedule II-2 shows that 16 pipelines are operating or



are about to operate under the FPC end-use plan, 14 use



the pro-rata contract plan, three use other plans, one



applies the FPC plan to 501 of the company's seasonal gas



supply and the pro-rata  plan to the remaining 50% and five
                            11-39

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did not file with the Commission curtailment plans to be
implemented in the event of supply shortages.—
     Under the pro-rata contract plan end-use by the consumer
is not considered, but interruptible service is usually the
first to be curtailed.  After all interruptible service is
curtailed the pro-rata plan provides for equal percentage
curtailment of each pipeline customer's firm daily entitlement,
The curtailment percentage is the ratio of the daily volume
to be curtailed to the sum of the daily entitlements of
all customers.  The pro-rata plan has been used historically
by the pipelines to reduce deliveries when outages occurred
because of storms, pipeline breaks and failure of pumping
equipment in the compressor stations.  The FPC end-use
plan, by definition,  would be unlikely to result in equal
percentage curtailments because of variations in the end-use
of gas by the consumers -- e.g., a local distributor serving
only residential and commercial consumers -- the highest
priority under the FPC plan -- may not be curtailed while
at the same time another distributor with large industrial
sales could be severely curtailed.
     As column (9) of Schedule II-2 indicates, the Commission
has under investigation the curtailment plans of 10 pipelines -
9 of them major pipelines for deviations from its approved
\J   Algonquin Gas Transmission uses two curtailment plans
     as explained in Column (15).
                         11-40

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end-use plan:   six of the investigations apply to the pro-

rata plans discussed above.—'   However, nine companies with

pro-rata plans are not under investigation; one of these,

Great Lakes Transmission, receives its gas supply from

Canadian sources.   Two companies, Florida Gas Transmission

and Michigan-Wisconsin had not reported any curtailments

as of the end of 1974.  Two companies, Cities Service Gas

and Natural Gas Pipeline Company of America, according

to Schedule H-lj  had substantial firm gas curtailments in

1974 of 12.5% and  17.5%.  The 1974 firm gas curtailments of

the remaining four companies, according to Schedule II-1, ranged

from zero percent  for Colorado Interstate to 1.8 percent for

Northern Natural Gas, 3.7% for Mid Louisiana Gas and 4.0%

for Louisiana-Nevada Transit as compared with the average

of 15.0% for all companies reporting curtailments.  The

endeavor by four pipeline companies to equalize the impact

of curtailments among the customers by rate surcharges and

credits (Column (11)) has met strong Commission opposition

as discussed on Schedule II-4 in the case history of the Trans-

continental Gas Pipeline Corporation.   The Commission has

found that these charges for undercurtailments and credits

for overcurtailments as compared with the system average
!_/   Inclusive of the 50-50% FPC and pro-rata plan used by
~    Transcontinental Gas Pipe Line.
                           11-41

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percentage of curtailment is contrary to the rate and



certificate sections of the Natural Gas Act.



     In regard to Column (14) the FPC end-use plan requires



that large interruptible sales made by the pipelines and



their distributor customers be discontinued completely



before any firm service is curtailed.  Under the pro-rata



plans and other plans, generally only the interruptible



sales made by the pipelines are first discontinued.



     Column (15) of Schedule II-2 indicates that in most



cases the pro-rata and other curtailment plans appear to



be tailored to the characteristics of the market served by



the individual pipelines -- see Mississippi River Transmission



for an example.



     In summary, Schedule II-2 covers the curtailment procedures



and status of plans of the domestic pipelines delivering



practically all of the gas sold for resale to the local gas



distributors and most of the gas sold directly to



industries by the pipelines.  The schedule shows in compact



form the major problems and conflicts confronting the



Commission and the regulated pipelines in their attempts



to reduce historic gas requirements to a balance with the



dwindling gas supplies and at the same time achieve maximum



consumer protection.
                             11-42

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D.    Prospects of Gas Curtailment
     Electric Generation vs.  Other Industrial Use
     Under the Commission's end-use curtailment plan gas

requirements for electric generation supplied under inter-

ruptible service contracts will be curtailed to the point

of complete suspension before any substantial amounts of other

industrial service are curtailed.  This result follows from

the wide difference in size of the power plant loads and

those for other industrial use, as well as the differing

contract types of the two categories of use.  Thus, on a given

pipeline system operating an end-use curtailment plan, electric

utilities are likely to be cut off from gas prior to industrials

     The average U.S. power plant generating unit has a name

plate rating of 142 megawatts which requires approximately

20,000 Mcf per day,I/ double the 10,000 Mcf per day that

institutes curtailment in Step 9 of the Commission plan.  In

contrast, the average gas industrial customer used about 76

Mcf per day in 1973.£/  An interruptible industrial customer

using the average of 76 Mcf or less per day and over the average

of up to 300 Mcf per day would be in Step 3 of the Commission

plan and would not be curtailed until all service to larger


!_/   Derived from data in Steam-Electric Plant Construction
     Cost and Annual Production Expenses, Twenty-fifth
     Annual Supplement - 1972.Federal Power Commission,
     April 1974.

2/   1973 Gas Facts, American Gas Association.
                            11-43

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use customers (Steps 4-9)  had been suspended.   Firm service



industrial customers that  do not use gas for boiler fuel



purposes would be in Step  3 regardless of the  volume of



daily requirements or in Step 2 of the plan if the industrial



use is for feedstock or process needs.  Finally, it is unlikely



that any substantial number of interruptible industrial customers



other than power plants who are supplied by the interstate



pipelines use in excess of the 1500 Mcf per day, the upper



limit of Step 6 of the Commission plan.



     Not only the level of gas consumption, but also the typical



purchase contracts, tend to make electric utilities more



susceptible to curtailments than industrial users.  In the



interstate market electric utilities buy gas on an interruptible



basis more commonly than industrial users.  During 1973, electric



utilities in the interstate market purchased 71 percent of



their gas under interruptible contracts, while industrial



customers purchased 44 percent of their gas under interruptible



contracts.  Only in a very few states -- Florida and Nevada



being examples -- does the proportion of firm gas reach a



significant level.



     The predominance of interruptible contracts by electric



utilities reflects in many instances the use of gas as a



secondary fuel, with coal  or oil being the primary fuel.



Chapter V provides greater detail on alternate fuel burning



capability of gas fired electric utility plants.
                            11-44

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                       CHAPTER III

           CURTAILMENT OF NATURAL GAS SALES BY
        GAS DISTRIBUTORS AND INTRASTATE PIPELINES
     As noted in the previous chapter, the amounts of

direct sales to industrial and electric utility customers

and sales for resale to distributors by interstate pipelines

are directly affected by the interstate pipelines' curtail-

ment plans.  In turn, the sales by the distributors to

their own customers reflect of course the total

amount of gas available to them,  determined by the supply

situation and curtailment plan of the pipeline.  However,

an added ingredient to understanding gas availability for

industrials and electric utilities served by distributors

is the policy of gas distributors and/or state regulatory

agencies, in light of FPC policies.

     A substantial amount of gas, particularly for con-

sumption by industrials and electric utilities, moves from

the wellhead to the burner tip without passing through inter-

state jurisdiction.  Under these  circumstances, regulatory

policies determined within the state  and corporate policies

are the essential factors in determining the disposition

of intrastate gas supply by sector.

     This chapter summarizes available information with

respect to curtailment policies on a state level.   In the

initial section, a recent survey  by  the National Association

of Regulatory Utility Commissioners  is discussed and summarized,

                            III-l

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The coverage therefrom is deemed sufficient for the con-

elusions drawn herein with respect to the states served

largely by the interstate pipeline network.  The second

section deals with the results of research with respect to

the intrastate market where there is substantial industrial

and electric utility gas consumption wholly within intrastate

commerce.

A.    The NARUC Survey

     In June 1974, the National Association of Regulatory

Utility Commissioners (NARUC) through its Staff Subcommittee

on Gas, sent two questionnaires to the regulatory agencies

of the 50 states, the District of Columbia, and two ter-

ritories to obtain current data principally on gas cur-

tailments restrictions on new or added gas service, con-

servation and increasing the available supply of gas.  On

November 15, 1974, NARUC reported the results of its

survey.-

     Of the 53 questionnaires sent, 32 responses were

received in time to be included in the report.  Seven of

these did not have regulatory authority over the natural

gas industry.  The information provided by the remainder,  25

states,-' varied considerably in responses to all of the

questions and in completeness of responses to each question.

I/   National Association of Regulatory Utility Commis-
     sioners: Survey of Action by State Regulatory Agencies
     a nd. _ I n trastate~Natural Gas Distributors to Meet Natural
     Gas STTortages. November 15, 1974.

2/   Includes only Oklahoma of the large gas producing
     states.
                             III-2

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Gas Curtailments



     Schedule III-l summarizes the current methods of cur-



tailing gas (curtailment plans) in each of the 11 states



that supplied a description of the service priorities



applicable during days of curtailment.  The schedule shows



in column (1) the classes of gas service supplied by dis-



tributors and in columns (2) through  (12) the order



of curtailment from first to last in each state; e.g., "1"



means first service to be curtailed.  Only two states,



North and South Carolina reported plans practically the



same as the Federal Power Commission's nine end use



priorities although all of them except one gave residen-



tial service the highest priority or last to be curtailed.



Five states that did not supply their curtailment plans



in response to the questionnaires stated that they would



implement the FPC end use plan.



     In response to the inquiry as to 10 factors of poten-



tial use in establishing priority of service during curtail-



ment, seven state commissions said "end use" and "prac-



ticality of alternate fuel use," six said "public interest",



five said "economics," and three,  "FPC guidelines."  Gener-



ally, the curtailment plans provide lowest priority to the



larger customers in any service class, as shown on Schedule



L1I-1, based upon their greater economic ability to obtain



alternate fuels.
                            III-3

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     Seventeen states replied to the question as to the



priority system used by the gas pipelines supplying their



states during curtailment:  six states said FPC end use;



six said "pro-rata"  (i.e., by pipeline sales



contract)  and five said "mixed" (part pro-rata and part



FPC end use).



     Nine of the 19 states that responded to the question



as to uniform curtailment if a local distributor received



gas from more than one interstate pipeline supplier said



the pipeline suppliers were not curtailing such local



distributors uniformly; one state said the curtailment



was uniform and the nine remaining states advised that



gas was received by their local distributors from only



one pipeline supplier.



     The non-uniform pipeline curtailments (e.g.,  assuming



two pipeline suppliers to a typical large distributor,



one curtailing supplies by 20 percent and the other not



curtailing on that day) present some problems at the dis-



tributor level particularly to large gas distributors



serving many communities within a state.   Under the ex-



ample above it may be physically impossible because of



lack of transmission facilities for the distributor to



move gas between separate communities so as to equalize



curtailments to industrial and other low priority consumers,



the result being full service to interruptible industrial




                             IIT-4

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customers in some communities and curtailment of all

industrial service in others.

Restrictions on New or Added
Gas Services __

     Six states of the 25 responding to the question

about restrictions and priorities on new or added gas

service indicated that no statewide restrictions or

priorities were in effect.  Two states restrict additional

residential gas service.   Eight states prohibit all new

gas sales but four of the eight have established priority

lists for connections in the future.  Nine states restrict

expansion of commercial and industrial sales to existing

customers .

             of Gas
     The state regulatory agencies responding to the ques-

tionnaires generally have not instituted programs to con-

serve gas but rather have encouraged the gas distributors

to initiate their own programs.   Only two states instituted

measures for reducing requirements by a more efficient

use of existing supply.   Three states ordered a reduction

in gas usage -- two for  ornamental gas lighting and one

ordered a 15 percent reduction in gas usage from the

same period in the preceding year but postponed penalties

for non-compliance.

     Conservation measures adopted by the distributors

and the regulatory commissions included the following:

                            1 1 T - 5

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public information by mass media on methods of conservation,

prohibition of promotional advertising, restriction of

swimming pool heating, and encouragement of insulation in

residences.  The primary effort according to most responses

was directed toward public information on the need for

and methods of conservation.

     The claims of volumes of gas saved by conservation

according to 18 responses, ranged from 2 to 15 percent

of the total volume used -- however, the authors of the

NARUC report recommended caution in interpreting the

volume and percent of gas conserved because of the dif-

fering bases of calculation used.  The volume saved

(reported by 5 states) was 108 Bcf.

     Reports by the American Gas Association indicate

that conservation of gas by residential and commercial

customers beginning in the Winter 1973-74 has a measurable

effect on gas sales, although it is offset somewhat by

additions of new customers.

Programs for Additional
Gas Supplies

     Twenty-five states responded to the question on

regulatory commission action to encourage utility programs

to obtain additional gas supplies.  Thirteen of the

responses indicated no such commission action; 12 indicated

encouragement -- two allowed the distributors to pass on
                           III-6

-------
pipeline supplier exploration costs to consumers, four



allowed the distributors to explore for gas and six en-



couraged utility peak shaving facilities for liquefied



natural gas, storage of gas and synthetic gas.



     Nine state commissions made rate allowances for



distributor loans, investments or advances to obtain



additional gas supplies.  Sixteen commissions did not



make such allowances.



Other Questions and Responses



     Nine of 14 states responding indicated that dis-



tributors in their states had mutual assistance programs



to exchange gas in the event of a critical temporary



shortage.  Seven states had mutual assistance programs



in the form of joint LNG, SNG facilities and shared



underground storage projects.



     Fifteen of the 25 states responding said they had



taken steps to have gas consumers use alternate fuels



to meet natural gas shortages.  Emphasis was directed



particularly to interruptible gas uses.  One state asked



the interruptible customers to submit their alternate



fuel requirements so that planning for supplies for the



1974-1975 Winter could be made by the state.  Use of



propane was encouraged; electric utilities were encouraged



to use fuel oil, coal and propane.



Summary



     Although the data obtained by the NARUC questionnaires




                            III-7

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is incomplete in coverage of the Lower 48 States, the 25

states responding account for over 50 percent of the national

sales and only about 13—  percent of the marketed production.

The report, thus, tends to fairly reflect conditions under

the gas shortages in the populous, gas receiving states.  In

addition, the report is the most recent authoritative source

of information on state activities in this regard.

     The summary of the gas curtailment plans in Schedule III-l

shows that on a state basis most distributors have adopted

the conventional type of curtailment -- first, interruptible

gas, next firm industrial and last, residential and com-

mercial service.  The principles underlying curtailment

methods, however, depart from the FPC criteri; of reliance

on end use only -- the practicality of obtaining alternate

fuels is given equal weight with end use although the im-

portance of end use is not downgraded.  Also, the economic

impact of gas curtailment, i.e., its effect on employment,

is important at the state level.  Three of the states par-

ticularly include hospitals, schools, nursing homes,

and like institutions in their highest priorities.

     The final impact of the pipeline supplier curtailments

occurs within the various states where the gas reaches the

burner tips.  The need for alternate fuels by industries

I/   Oklahoma, one of the 25 states, provides about
     60 percent of the group's marketed pi eduction.

                            III-8

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that have relied on natural gas where supplies were abundant

is also in the local communities.  Thus, the state regula-

tory commissions are naturally cautious about adopting any

single plan of curtailment since they are responsible in

their states for the economic impact.-   The commissions,

with good reason, would prefer to establish general guide-

lines and allow each local distributor to establish under

the guidelines the curtailment plan best suited to its

supply and markets both of which are best known to the

distributor.

B.   Curtailment Plans in Intrastate Markets

Texas

     Texas utilities, with nearly 32,000 megawatts of

generating capacity being gas-fired, burned 37 percent of

the electric utility industries total gas supply in 1973.

In light of the magnitude of the gas consumption by electric

utilities in the State of Texas (1,277.8 Bcf in 1973), and

the fact that over 98 percent of this gas is delivered from

intrastate suppliers not subject to FPC regulation, it is

important to obtain a clear understanding of the juris-

dictional structure with respect to gas supply within this

state.

     Gas has been the primary boiler fuel in Texas since

the 1920's and 1930's when a switch was made from coal;

I/   42 of the 48 states assign responsibility for cur-
     tailment of gas service to the regulatory commission.
                            III-9

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today electric utilities in the state are approximately 90%

dependent on this fuel.  The enormous volume of gas burned

within the state, virtually all of which is free from

Federal control, is subject to the rules and regulations of

the Texas Railroad Commission.   This body dominates nearly

every phase of the natural gas industry within the state,

and the extent of their control is clearly defined in the

following excerpt from the Gas Utilities Act:—

     Article 6050 to 6066, Inclusive, R.C.S.., 1925 (As
     Amended) --

     ARTICLE 6050.  Classification -- The term "gas
     utility" and "public utility" or "utility", as
     used in this subdivision, means and includes per-
     sons, companies and private corporations, their
     lessees, trustees, and receivers, owning, managing
     operating, leasing or controlling within this State,
     any wells, pipe lines, plant property, equipment,
     facility, franchise, license, or permit for either
     one or more of the following kinds of business:

          1.  Producing or obtaining, transporting,
     conveying, distributing or delivering natural gasJ
     (a) for public use or service for compensation;
     (b) for sale to municipalities or persons or com-
     panies, in those cases referred to in paragraph 3
     hereof, engaged in distributing or selling natural
     gas to the public;  (c) for sale or delivery of
     natural gas to any person or firm or corporation
     operating under franchise or a contract with any
     municipality of other legal subdivision of this
     State; or  (d) for sale or delivery of natural gas
     to the public for domestic or other use.

          2.  Owning or operating or managing a pipe line
     for the transportation or carriage of natural gas,
I/   Eighty-second Annual Report of the Railroad Commission
     of Texas; Gas Utilities Division, 1973.

                            111-10

-------
     whether for public hire or not,  if any part of
     the right of way for said line has been acquired,
     or may hereafter be acquired by the exercise of
     the right of eminent domain; or,  if said line or
     any part thereof is laid upon, over, or under,
     any public road or highway of this State,  or street
     or alley of any municipality, or the right of way
     of any railroad or other public utility; including
     also any natural gas utility authorized by law to
     exercise the right of eminent domain.

          3.  Producing or purchasing natural gas and
     transporting or causing the same to be transported
     by pipe lines to or near the limits of any munici-
     pality in which said gas is received and distributed
     or sold to the public by another public utility or
     by said municipality, in all cases where such business
     is in fact the only or practically exclusive agency
     of supply of natural gas to such utility or munici-
     pality, is hereby declared to be virtual monopoly
     and a business and calling affected with a public
     interest, and the said business and property employed
     therein within this State shall be subject to the
     provisions of this law and to the jurisdiction and
     regulation of the Commission as a gas utility.

          Every such gas utility is hereby declared to
     be affected with a public interest and subject to
     the jurisdiction, control, and regulation of the
     Commission as provided herein.  (Acts 3rd C.S.,
     1920, P. 18.)

     A primary function of the Railroad Commission is the

allocation of inadequate gas supplies.  This function stems

from its authority to "regulate and apportion the supply of

gas between towns, cities, and corporation.—   The Railroad

Commission believes that this authority gives it the right

to apportion the state's entire intrastate gas  supply,

although this contention is currently being disputed in a

I/   The discussion of legal authority and regulations in
     Texas is largely adopted from two reports  by the Gov-
     ernors Energy Advisory Council of the State of Texas:
     Project No. L/R4, "Legal and Regulatory Policy Aspects
     of Energy Allocation," and Project No. L/R1, "Existing
     Energy Law and Regulatory Practice in Texas."  These
     reports were submitted by the Office of the Attorney
     General in November of 1974.

                            III-ll

-------
number of cases including:  City of Austin, City of San

Antonio,  Lower Colorado River Authority, v. Railroad Commission,

Civil No. 213478 (53rd Dist.  Ct,, Jan. 1974).  Under the

above mentioned authority,  the Commission issued an order

in January 1973 which set up  general rules governing the

priorities to be followed by  gas utilities in the event

of a gas  shortage.   The gas utilities were then required to

submit their specific curtailment programs to the Railroad

Commission.   The priority system of the Railroad Commission,

which would be utilized until those of the individual utilities

had been approved,  is as follows:

     A.   Residences, hospitals, schools, churches
          and other human needs customers.

     B.   Small industrials and regular commercial
          (less than 3,000 Mcf per day) and use for
          pilot lights and accessory equipment.

     C.   Large users of gas  for fuel or as a raw
          material  where no alternative exists.

     D.   Large users of gas  for boiler fuel or
          other fuel users where alternate fuels
          could be  used.

     E.   Interruptible sales.

     The majority of the gas  utilities in the state

elected  to adopt the priority list established by the

Railroad Commission, although separate curtailment pro-

grams were submitted by Lone  Star Gas Co,, Pennzoil

Pipeline Co., Union Texas Petroleum, and Lo Vaca Gathering

Co.  in 1973.   In the list formulated by the Railroad

                            111-12

-------
Commission, as well as in most others submitted, the electric

utilities with firm contracts have a low priority status and

are curtailed immediately following interruptible cus-
       i / 7/
tomers.-  -   Gas supplies were curtailed to a number of

Texas electric utilities in 1973 and 1974, including Houston

Lighting and Power, Texas Power and Light, and Dallas Power

and Light.  More severe curtailments were suffered by the

customers of Coastal States Gas Corp. and its subsidiary Lo

Vaca Gathering Co.   The utilities served by these gas sup-

pliers provide electric service for a substantial portion of

South-Central Texas, including the cities of Austin and San

Antonio.  Power plants operated by the Lower Colorado River

Authority, the City Public Service Board of San Antonio, and

the Utility Fund of Austin burned considerable amounts of

oil in 1973 and 1974 due to recurring interruptions in gas

supplies.  Gas curtailments were less severe in 1974 than in

1973, partially because of a relatively mild winter, but

these curtailments have become a matter of major concern for

the state's electric utilities as well as the Railroad

Commission.

     A second item of concern for the electric utilities in

the state is the Railroad Commission hearing which began in

June, 197S.  This hearing is being held to "allow all

I/   The majority of gas burned by electric utilities and
     industrials in Texas is purchased under firm contracts.

2/   In a few specific cases, the Railroad Commission has
     granted short-term relief from curtailments to power
     plants.
                            111 -13

-------
gas utilities, owners or operators of gas-fired boilers, and

any interested party to appear and present evidence re^

garding the reduction or elimination of natural gas as a

boiler fuel in Texas and the development of a reasonable

schedule for phasing out the usage of natural gas as a

boiler fuel in Texas."-'   The Railroad Commission feels

that "the public interest requires, among other things,

a determination of the reasonableness of reducing or elim-

inating natural gas as a boiler fuel."

     A major contention of the opponents of such a move is

that the Railroad Commission cannot overrule existing

contracts. However, in the case of a public utility the rule

which may prevail provides that "a corporation organized for

a public purpose may not contract away its ability to

perform its obligations."-   A further consideration is that

"parties cannot circumvent or limit -the power of the Com-

mission in administering the conservation laws by private

agreement."-   These two rules, coupled with the general

\_l   "Amended Order Setting a Statewide Hearing," in
     re: "Elimination of Natural Gas Used as a Boiler Fuel
     in Texas," Railroad Commission of Texas, Gas Utilities
     Division, Docket No. 600, April 11, 1975.

II   Lone Star Gas Co. v. Municipal Gas Co.,  117 Tex, 331,
     3 S.W. 2d 790, 792  (1928); Gulf C. + S.F. Ry. Co. v.
     Mp_rri_s_, 67 Tex. 692, 4 S.W. 156, 158 "(1887)".

3/   Railroad Commission v. Mack-Hank Petroleum Co., 186 S.W.
     2d 351, 357 (Tex. Civ. App.--Austin 1945), rev'd on
     other grounds, 144 Tex. 393, 190 S.W, 2d 802 (1946).

                            ITI-14

-------
acknowledgement of the Texas courts of the broad powers of

the Railroad Commission, seem to indicate that a total

phaseout is indeed a strong possibility.  The power of the

Railroad Commission was acknowledged by the Court of Civil

Appeals in Danciger Oil and Refining Co. v. Railroad Com-

mission:

          "We recognize the rule that, in the
     regulation and control of private rights and
     properties of individuals by administrative
     agencies of the state, the interests of the
     individual, so far as consonant with the
     public welfare, should be jealously guarded
     and protected; and no authority not clearly
     delegated to such agency by the Legislature,
     or necessarily implied from that express
     delegation, should be sustained. .  . .
     Because of the nature of the subject matter
     involved here, however, that line of cases
     does not furnish an accurate analogy.  In
     the instant case, the commission, as the
     designated agency of the Legislature, was
     given the mandatory direction to carry out
     the mandate of the Constitution to prevent
     waste of the natural resources.  That duty
     was expressly enjoined upon it.  In construing
     the validity of its acts in undertaking to do
     so, we must consider the nature, character,
     and extent of the subject matter placed under
     its jurisdiction and the purposes sought by
     the Legislature to be accomplished.  So con-
     sidered, any order of the commission bearing
     a reasonable relationship to the general duty
     imposed upon the commission, which is not
     unreasonable nor unjust, and which is reason-
     ably calculated to prevent waste, comes, if
     not within the express powers granted to the
     commission, clearly within those necessarily
     implied; and is "confined to the obvious
     purposes and directions of the statute."
                            111-15

-------
Spokesmen for the Railroad Commission have stated that they
do not wish to immediately abolish boiler fuel gas, as this
would have a detrimental effect on both the pipelines and
the utilities.  One estimate is that the conversion process
might be of a ten-year duration, although an industry spokes-
man felt the process would take 30 years if done properly.
Three possible options available to the Railroad Commission
in order to achieve the phaseout are: (1) phase in a tax
incentive to convert to other fuels over a ten-year period;
(2) seek a new federal law permitting low-priced gas bought
under old contracts to be resold at higher prices (as to a
gas utility serving customers in another state) to com-
pensate for the cost of conversion or (3) develop phaseout
schedules on a case-by-case basis.—    Decisions on the
elimination of natural gas as a boiler fuel in Texas will be
made in the near future, and they will be the object of
close scrutiny by the state's electric utility industry.
Louisiana
     The volume of gas consumption in the electric utility
sector of Louisiana (369 Bcf in 1973) ranks third in the
U.S., with only Texas and California surpassing this level.
Gas is supplied by both intrastate and interstate sources,
with intrastate suppliers accounting for the lion's share
of the market, approximately 72 percent.  Electric utilities
in the interstate portion of the market have been hit hard
I/   El^tlicJLl W^£k> May 19, 1975.
                            111-16

-------
by curtailments, especially those supplied by United Gas

Pipeline, the major interstate source of gas in the state.

     In late 1973, the Extraordinary Session of the Louisiana

Legislature enacted Act No. 16 establishing a Division of

Natural Resources and Energy.  This new Division was the

result of a study on energy matters within the state sub-

mitted to the Governor by an Energy Advisory Council.  A

system of priority use for intrastate gas was established

by the Division of Natural Resources, but this system has

not been put into effect, and to do so would require an

emergency order from the Governor.  Such an order is not

anticipated at this time.  The priority schedule which

would go into effect in the event of a serious intrastate

gas shortage places large volume boiler fuel use (industrial

and electric utilities) in priorities eight and nine of

a nine-step plan.  Large volume boiler fuel users with

alternate fuel capabilities (priority nine) would be

the first group to be curtailed,—  followed by large

volume boiler fuel users with no alternate fuel capabilities

(priority eight).  The Commissioner of Conservation has

the authority to curtail the gas supply of those plants

which he feels could be modified to accomodate alternate

fuels wit»; "minimal cost and delay."  Gas required for

the protection of public health, safety and welfare,

I/   Interruptible gas sales represented less than
     7 percent of total Louisiana gas sales in 1973,
     and are not set out in the priority schedule
     separately.

                             111-17

-------
including maintenance of gas and electrical service to



homes, schools, hospitals and services would fall in



priority one.  An interesting feature of the Louisiana



curtailment structure is that no purchaser of gas shall



be subject to a curtailment in excess of 10 percent of



daily contracted demand.  That is, after all users in



class nine are curtailed by 10 percent, cut-offs would



begin in class eight.  The result of this type of plan



is that all users are forced to sacrifice to some degree,



rather than completely eliminating the supplies to one



specific group of users.  What would follow the curtailment



of 10 percent of class one's gas, should a continuation



of the curtailment be necessary, has not been specified.



     No actions similar to the proposed phaseout of



boiler fuel gas in Texas have been initiated in Louisiana,



and the feeling in this state regarding this matter seems



to be "wait and see" at this time.



Oklahoma



     Electric utilities in Oklahoma consumed 271 Bcf in



1973, nearly 8 percent of the national total.  This gas



was supplied almost entirely by intrastate sources, and



therefore falls under the jurisdiction of the Oklahoma



Corporation Commission rather than the FPC.  The Corp-



oration Commission is a regulatory body which is now



provided with policy recommendations on energy matters



                             111-18

-------
by the State Department of Energy, a new agency created

in 1974 with the enactment of HB1638.  The allocation

of fuels is an issue of primary importance to this agency.

     No curtailment orders have been issued in Oklahoma,

nor has a priority structure yet been established.  The

shortage of natural gas does not appear to pose a serious

threat in Oklahoma at this time, and the utilities in this

state have full confidence in their gas supplies.  However,

even though existing gas-fired power plants are expected

to maintain or exceed their current levels of gas con-

sumption, new plants built in this state will be fueled

mainly by coal or nuclear sources.  This switch will

become more evident in the later years of the 1970's.

C.   The Impact on Electric Utilities and Industrials
     of Curtailments by Distributors and Intrastate Pipelines

     The supplies of gas available to local distributors

in the states outside of the major Southwest producing

states depend upon deliveries by the interstate pipelines

principally of Southwest gas and to some extent of gas

imported from Canada.  The curtailment of deliveries by

most of the gas distributors in the country may therefore

be expected to reflect the priorities in the curtailment

plans of their pipeline suppliers -- curtailment first of

all interruptible deliveries including boiler fuel and

next of any firm service large boiler fuel sales.  Residen-

tial and small commercial and industrial sales, hospitals

                            111-19

-------
and schools will be the last to be curtailed.

     Thus, with some differences, the curtailments ordered

by the pipelines will be reflected in curtailments by the

distributors.   The pipeline curtailments, those on the

Commission end-use plan and others temporarily in effect,

are aimed at interruptible sales and boiler fuel sales

as a class.  But the distributor curtailment directly

affects individual industrial customers.

     At the state level, consideration must be given to

the difficulties of the individual customers in obtaining

alternative fuels in much greater quantities than before

the gas shortages.  Also the substantially higher prices

to be paid for the substitute fuels may affect the com-

petitive position of an industry in the market place.

Since these difficulties threaten plant shut-downs with

consequent loss of employment in many communities, the

state regulatory commissions may be expected to order

suspension of deliveries to power plants or frequent

curtailments before reducing other industrial deliveries.

Such action would be in accord with the FPC findings

quoted below:-'

          "Finally, subordinating boiler fuel use
     with its comparative ease of substitutability,
     to other large scale industrial and commercial
     uses should tend to minimize plant and business
     closings and the attendant economic loss from
     decreased production and payrolls and the other
     personal hardships of unemployment."

I/   Federal Power Commission Opinion No. 643, Docket
     No. RP 71-122, Arkansas-Louisiana Gas Co., 1/5/73.

                            111-20

-------
     The deteriorating gas supply situation in Texas



indicates a similar but longer range treatment of power



plant sales in that state.  The general statement on



priority of service by the Texas Railroad Commission



in the last two steps (D and E) has the same curtailment



effect as the Commission's end use priorities.  Deliveries



of gas obtained from intrastate suppliers in other Southwest



producing states may be expected to follow the curtailment



procedures being introduced in Texas if the supply



situation in these states worsens.
                            111-21

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                         CHAPTER IV

          THE PROJECTED AVAILABILITY OF NATURAL GAS
          TO ELECTRIC UTILITY STEAM-ELECTRIC PLANTS
                        1975 TO 1980
     With the increasing shortage of natural gas, the outlook

for gas availability is bleak.   It is the purpose of this

chapter to set out specific forecasts of gas availability to

gas-burning electric utility power plants, on a plant-by-

plai t bc-si s .

     The flow of gas to electric utilities was analyzed in

Chapter I.  As indicated in that chapter, the majority of

gas consumed by electric utilities is purchased from gas

pipelines and distributors.  Less than 5 percent of gas

consumed by electric utility power plants is purchased di-

rectly from producers.   Thus, the amount of gas available

to electric utilities will depend on the supply of gas to

pipelines and distributors and the curtailment policies of

these pipelines and distributors.

     As also indicated in Chapter I, approximately 62 percent

of the gas consumed by electric utilities in the United States

moves in intrastate commerce.  This gas is not subject to

FPC jurisdiction and thus its consumption is not affected by

the curtailment plans of interstate pipelines.  However, a

substantial volume of gas -r 1,294 Bcf in 1973 -- moves to

electric utilities through interstate pipelines.  In the

-------
states of Texas, Louisiana, Oklahoma and New Mexico, the



majority of gas burned by electric utilities moves thereto



wholly in intrastate commerce.   Most of the gas consumed in



Florida by electric utilities in Florida is transported by



an interstate pipeline but is purchased from producers in



Texas and Louisiana by the electric utilities.  Gas to most



other electric utilities is purchased directly or indirectly



from interstate pipelines.



     Chapters II and III indicated that there is consider-



able divergence in the curtailment policies of different



gas companies, reflecting markets, supply and regulatory



constraints.  However, electric utilities are generally



among the first to be cut off from gas supplies if demand



exceeds supply.  The end-use plans of interstate pipelines



would theoretically eliminate large volume interruptible



electric utility and industrial use before any other cate-



gory is curtailed.  Many of the pro-rata plans of interstate



pipelines also result in initial curtailments falling upon



electric utilities.  To the extent that state regulatory



agencies have promulgated policies with respect to natural



gas curtailments for gas companies falling within their



jurisdiction, the practical results of these policies will



be to reduce the availability of natural gas to electric



utilities.



     Schedule IV-1 shows the projected availability of
                              IV-2

-------
                         CHAPTER IV

          THE PROJECTED AVAILABILITY OF NATURAL GAS
          TO ELECTRIC UTILITY STEAM-ELECTRIC PLANTS
                        1975 TO 1980
     With the increasing shortage of natural gas, the outlook

for gas availability is bleak.  It is the purpose of this

chapter to set out specific forecasts of gas availability to

gas-burning electric utility power plants, on a plant-by-

pi ai t has i 5.

     The flow of gas to electric utilities was analyzed in

Chapter I.  As indicated in that chapter, the majority of

gas consumed by electric utilities is purchased from gas

pipelines and distributors.  Less than S percent of gas

consumed by electric utility power plants is purchased di-

rectly from producers.   Thus, the amount of gas available

to electric utilities will depend on the supply of gas to

pipelines and distributors and the curtailment policies of

these pipelines and distributors.

     As also indicated in Chapter I, approximately 62 percent

of the gas consumed by electric utilities in the United States

moves in intrastate commerce.  This gas is not subject to

FPC jurisdiction and thus its consumption is not affected by

the curtailment plans of interstate pipelines.  However, a

substantial volume of gas -- 1,294 Bcf in 1973 -- moves to

electric utilities through interstate pipelines.  In the

-------
^5-aa, 0*la °            mOves there

                                               e.
                                      o trie i
                       use be      any            ^

                           rata      s
                            ta
               •  -"lalCU     ,tate regular
          "     ue extent tnat ^         o natural
              '         .  .  with respect


            :  -  ^anie5   o£ these  Nicies «»
               ..... -,,1  results               electric
              ';-;-;  ,,yo£ natural^"
                           .  c
                      .e projec

-------
natural gas to electric utility power plants annually from

1973 to 1980, by plant, company, state and region.  On Sheet

29, the total for the U.S.  is shown to decline dramatically,

from 3.4 quadrillion Btu's  in 1973 to 1.7 quadrillion Btu's

in 1980.  This amounts to a 49 percent reduction in seven

years.  As shown on the following summary table, predomi-

nantly interstate markets are projected to decline more

acutely than intrastate markets.
            CURRENT AND PROJECTED GAS CONSUMPTION
   FOR ELECTRIC UTILITY STEAM GENERATING PLANTS
                     (Quadrillion Btu's)

                    Predominantly  Predominantly
                      Interstate    Intrastate  ,  Total
                    	Markets       Markets  -'   U.S.

       1973
       1974
       1975
       1976
       1977
       1978
       1979
       1980

       a/   Texas, Oklahoma, Louisiana and New Mexico.
     For the total U.S., electric utility gas consumption

declined somewhat in 1974 compared with 1973.  However,

predominantly intrastate markets showed a slight increase,

while predominantly interstate markets experienced a de-

crease in electric utility gas consumption.   The increase

in intrastate markets reflects not only the  greater relative


                         IV-3
1
1
0
0
0
0
0
0
.43
.20
. 79
.31
.24
.22
.18
.15
2.
2.
1.
1.
1.
1.
1.
1.
01
10
93
81
76
70
65
59
3.44
3.30
2.72
2.12
2.00
1.92
1.83
1.74

-------
deliverability of gas,  but also the warmer weather prevail-



ing in 1974 which ameliorated curtailments.  Although elec-



tric utility gas consumption in the interstate market de-



clined in 1974, it is herein estimated that the decline



would have been more severe were it not for warm weather



and the impact of conservation and the recession.



     Factors such as weather, conservation and the recession



affect the demand for gas in the residential-commercial and



industrial sectors, and thus the supply of gas for electric



utilities.  Since by regulatory fiat or operating practice



electric utilities are given "low priority" status under



most curtailment plans, a decrease in demand by higher pri-



ority sectors results in increased availability for electric



utilities.



     Electric utility gas consumption in predominantly



interstate markets is projected to decline by one-third to



0.8 quadrillion Btu's in 1975.  This projection would be



substantially lower were it not for key assumptions with



respect to continuation of the recession and conservation



in 1975.  After 1975, a resumption of economic growth is



assumed, and the overall gas supply situation is projected



to continue to deteriorate, resulting in virtual elimination



of interstate sales for power plant consumption.  Another



key assumption is that all but one interstate pipeline



will be curtailing on some end-use basis after 1975.  This
                              IV-4

-------
would result in electric utilities initially bearing the



brunt of the shortage.  During this period, as the "cushion"



of electric utility gas consumption diminishes, industrial



curtailments will grow increasingly severe.



     By 1980, it is projected that within predominantly



interstate markets electric utilities in only two states



will have appreciable gas consumption.  It is projected



that some electric utilities in Kansas, with indigenous gas



some of which moves  intr-istate, could still be burning gas.



In Florida, a substantial amount of gas transported to



electric utilities is not subject to pipeline supply curtailment



With respect to the amount of gas subject to pipeline supply



curtailment in Florida, the small proportion of high priority



markets in this state and the type of curtailment plan also



facilitates continued sales to power plants by the interstate



pipeline.  Neveitheless, electric utility gas consumption in



both states is forecast to decline substantially.



     California, New York and Arkansas, three states in



which electric utilities have traditionally burned large



amounts of gas, are shown to have little gas available for



electric utility gas consumption after 1975.  Thus, for



predominantly interstate markets, it may be concluded that



gas will not be a major boiler fuel in the future.  Even if



substantially more gas were available for all sectors than



the volume,, assumed herein, the electric utility sector



would not be the recipients.  The industrial sector, generally






                         IV-5

-------
of higher priority than the electric utility sector, would



be available to absorb any additional volumes.



     As shown in the summary table, gas consumption by



electric utilities in predominantly intrastate markets would



not decline as rapidly as in interstate markets.  However,



this forecast assumes business as usual., especially in Texas.



It should be noted that the Texas Railroad Commission is



considering the phaseout  of gas as a boiler fuel in Texas,



which might also lead to similar actions in other gas pro-



ducing states.  Thus the projections to 1980 could be viewed



as an upper limit.  If this projection were to prevail in



Texas, industrial gas consumption might well be reduced.



     It should be noted that both the interstate and intra-



state forecasts assume an end of the recession by 1976 and a



resumption of real economic growth thereafter.  Moreover,



the forecasts do not reflect any significant reduction in



industrial demand for gas due to energy conservation.



Dampening of industrial demand for gas could increase the



availability of gas for other sectors, including the electric



utility sector.  As a practical matter, however, the above



assumptions with respect to economic conditions and conser-



vation have a more significant effect on the earlier years



of the forecast - 1975 and 1976 - than the later years to 1980



     The following two sections explain and discuss in more



detail the forecasts.  In Section A predominantly inter-



state markets are discussed, and in Section B predominantly






                         IV-6

-------
intrastate markets (Texas, Louisiana, Oklahoma and New

Mexico) are discussed.



A.   Projections for Predominantly
     Interstate Markets	

     The supply of natural gas available in the future to

a power plant attached to the interstate pipeline network is

determined largely by the supply situation on the specific

interstate pipeline from which it draws its supplies.  Al-

though the overall interstate pipeline supply situation is

bleak, there are sufficient differences among the individual

pipelines and distributors which have significant effects on

the amount of gas for specific power plants.

     On a given interstate pipeline, future supply availa-

bility for power plants is dependent upon several factors.

Deliverability on the pipeline system for all classes of

users in forthcoming years is, of course, the foremost con-

sideration.  For any particular class of users, the share

which they may expect to obtain of the future overall supply

is determined largely by the curtailment plan in effect on

the pipeline specifying the manner in which supply inadequa-

cies will be handled.  The dissimilarities of curtailment

plans in use by different interstate pipelines have already

been discussed.  For power plants, the critical question is

the extei t to which they are treated as the first class of

users to be curtailed, and the degree to which others also

suffer early curtailments, on each individual pipeline sys-

tem .

                         IV - 7

-------
     An additional factor of great importance is the aggre-



gate composition of different user classes on particular



pipelines.   Some systems have predominantly residential and



commercial  loads, others have greater industrial and power



plant demands in relationship to their residential and com-



mercial volumes.  Even with given industrial and power plant



shares of the total pipeline demand, different pipelines



differ with respect to the proportion of firm and iriterrup-



tible deliveries.  These relationships among several user



classes, termed the pipeline end-use profile, significantly



affect the  way in which curtailment plans will impact upon



future gas  supplies available to power plants.



     In order to illustrate these effects, assume that two



pipelines each projected a 10 percent decline in system



deliverability, each had a curtailment plan in which all



interruptible industrial and power plant customers were



curtailed first, with firm industrial and power plant custo-



mers curtailed only after all interruptible loads had been



eliminated and with residential and commercial users cur-



tailed only after all industrial and power plant volumes



has been cut off.  If one of the two pipelines had 50 per-



cent residential and commercial customers, 40 percent firm



industrial and power plant users and 10 percent interruptible



loads, then the 10 percent supply decline on the system as



a whole would totally eliminate all the interruptible volumes



If the other pipeline had only 20 percent residential and
                         IV-8

-------
commercial, 40 percent firm and 40 percent interruptible



consumption, then the 10 percent decline in systemwide



deliverability would result in only a 25 percent curtailment



of interruptible customer volumes.  Given the practical fact



that residential and commercial users will not be curtailed



while any interruptible users are obtaining even a small



volume of gas, the immediate conclusion is that the larger



the residential and commercial proportion of the pipeline



end-use profile, the more vulnerable the interruptible custo-



mers are to drastic curtailments.



     The same naturally holds for firm industrial and power



plant users with respect to the magnitude of residential



and commercial end-use on their pipeline supplier's system.



Firm users, however, are also affected by the proportion of



interruptible usage.  Taking the same two hypothetical pipe-



lines as before, a further 10 percent decline in supplies



available to the first supplier would all be taken out of



firm volumes, and would amount to 25 percent of the firm



usage, since the first 10 percent supply loss had already



eliminated the interruptible categories on that pipeline.



On the second pipeline, however, the next 10 percent supply



loss would not affect firm users at all, because there was



still interruptible gas being delivered and available for



curtailment.  Thus, the "low priority" usage acts as a cush-



ion for the higher priority usage.
                         IV-9

-------
     The relationship between a power plant and its source



of interstate natural gas also affects the supply expecta-



tions.   A power plant obtaining its gas by direct sale from



a pipeline may have a different supply picture than one



obtaining gas indirectly from the same pipeline by resale



from a local distribution company which has purchased gas



from the pipeline.   In the former case, the theoretical



impact of the curtailment plan would be no different from



the actual impact.   In the latter case, if the curtailment



instituted by the distributor differed from that of the pipe-



line, the theoretical results of the pipeline plan might not



be carried out.



     The general framework for projecting the availability



of gas to power plants in predominantly interstate markets



involved three steps for each pipeline serving, directly or



indirectly, electric utilities.  As the initial step, overall



pipeline supply was projected.  The second step was obtaining



or estimating the end-use profile -- sales by sector -- for



the relevant pipelines.  The third step was to allocate the



supply to specific power plants by reference to the curtail-



ment plans of the relevant pipelines and/or distributors.



     As the basis for supply projections, the Form 15 reports



filed by the interstate pipelines in early 1974 were utilized.



These projections were in some cases modified by reference



to the latest FPC data on near-term curtailments and more



recent projections published in annual reports to stockholders



and prospectuses.  The Form 15 forecasts take into account






                          IV-10

-------
projected deliveries from presently dedicated reserves but



do not take into account deliveries from reserves which may



be obtained in the future.  For the near-term, the addition



of new supplies would not alter significantly the total



sales of a pipeline, but in the longer term the assumption



of no additional supplies becomes more precarious.  As will



be discussed, however, a reasonable estimate of additional



future supplies would not significantly alter the availabil-



ity of gas to electric utilities through 1980.



     End-use profiles were obtained for many pipelines from



filings in curtailment cases at the FPC.  For those pipe-



lines for which no end-use information was available from



curtailment cases, end-use profiles were estimated from



available data.



     By reference to the supply projection and the end-use



profile, the impact of the curtailment plan in effect as of



the beginning of 1975 (see Chapter II) was estimated.  While



many pipelines are operating under curtailment plans which



follow the nine priority end-use structure, there are a



number of pipelines whose current plans differ to varying



degree from that structure.  It was assumed in preparing



the forecasts that the plan in effect at the beginning of



1975 would be operative through the end of the year.  It was



assumed that after 1975 most curtailment plans would be end-



use oriented.  Thus, strictly pro-rata plans were assumed to



be abandoned in favor of end-use plans.  The forecasts in





                         IV-11

-------
some cases could be higher after 1975 if these changes in



curtailment plans were not assumed.



     The forecasts also incorporate certain assumptions with



respect to the impact of conservation practices largely in



residential and commercial sectors and the recession on



industrial demand.  Unadjusted for these considerations,



the 1974 estimated consumption would show 10.4 percent less



power plant consumption in predominantly interstate markets



than actually occurred in that year.  Hence, for the year



1975, a 6 percent downward adjustment in industrial require-



ments was made to reflect the recession, and a 4 percent



downward adjustment in residential usage was made to reflect



conservation.  Economic growth was assumed to resume thereafter,



although the effect of conservation was assumed generally to



remain.



     At this point it should be noted that the forecasting



methodology reflects static assumptions with respect to the



supply and requirements of interstate pipelines.  The Form



15 supply projections, as modified for more recent data, do



not take into consideration production from new reserves



which may be acquired.  With respect to demand, the base



period data utilized in implementing curtailment plans does



not take into consideration increases in demand in the high



priority sectors.



     Schedule IV-2 shows the historical trend in reserves



additions, production  (net withdrawals from reserves) and






                         IV-12

-------
total reserves for interstate pipelines.  As shown on the

schedule, interstate production has declined from a peak

of 14.2 Tcf in 1971 and 1972 to 13.7 Tcf in 1973 and 12.9

Tcf in 1974.  End-of-year reserves have declined 39 percent

since 1967, reflecting insufficient reserves additions to

replace production.  In the last three years net additions

to reserves have been zero.

     The extent to which the Form 15 supply projections may

be tenuous depends on the future level of reserves additions

by interstate pipelines.   If interstate pipelines continue

to be unable to acquire new reserves, then the Form 15 supply

projections will be the fact.

     Including the more prolific years of reserves additions,

reserves additions by interstate pipelines have averaged

6.4 Tcf per year since 1963.  An illustrative supply projec-

tion to 1980 is shown below, assuming interstate reserves

additions of 3 Tcf in 1975 and 6.4 Tcf each year thereafter.
1974
1975
1977
1980
          ILLUSTRATIVE INTERSTATE SUPPLY PROJECTION
                  (Billions of Cubic Feet)
Production from
Reserves as of
December 31,  JL9_7_4

     12,888
     12,148
     10,409
      7,794
                                Production from
                                Assumed New
                                   Reserves
  910
2,386
   Total
Production

  12,888
  12,148
  11,319
  10,180
                         IV-13

-------
     What the above analysis suggests is that interstate

supply will decline to 1980, but the amount of decline is

dependent upon the assumed level of reserves additions.

     These illustrative supply projections may be compared

to overall interstate patterns to estimate their impact on

various categories of end-use.  Gas available to electric

utilities has already been forecasted at 662 Bcf in 1975,

113 Bcf in 1977, and 74 Bcf in 1980.^  If residential and

commercial uses are allowed to grow at 2 percent annually
                                   7 /
from their 1973 level of 6,089 Bcf,-  then it would reach

6,996 Bcf by 1980.  The effect of these estimates is shown

below, with industrial consumption treated as a residual,

taking whatever is not assigned to the residential, commercial,

electric utility and other categories.


         ILLUSTRATIVE INTERSTATE SUPPLIES BY END-USE
                  (Billions of Cubic Feet)

                               1975      1977      1980
     Residential £ Commercial  6,335     6,591     6,996
     Industrial                4,365     3,882     2,450
     Electric Utility            662       113        74
     Other                       787       755       660
                    TOTAL     12,149    11,519    10,180
I/   Excluding Texas, Louisiana, Oklahoma, New Mexico and
     Florida because of the predominance of intrastate sup-
     plies and/or transportation of supplies.

2/   FRC data for 1973.  Texas, Louisiana, Oklahoma and New
     Mexico excluded.
                         IV-14

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     The impact upon industrial consumption, even assuming

the drastic curtailments in electric utility supplies dis-

cussed in other sections of the study, is to reduce it to 47

percent of its 1973 level by 1980, a shortfall of 2,710 Bcf

from the 5,160 Bcf received by industrial customers in

1973.-   Thus, in order to alleviate the industrial curtail-

ments, additional supplies will have to amount to 2,897 Bcf

in 1980, allowing for the resultant increase in other use,

in order to provide 2,710 Bcf of additional natural gas for

industries.  Since the supply projection used herein already

includes additional new production of 2,386 Bcf in 1980,

the increase would have to be more than twice that great in

order to offset expected industrial curtailments.  Even

then, with new production in 1980 amounting to 5,283 Bcf in

1980, or 68 percent of production that year from currently

existing reserves of interstate pipelines,  no increase is

likely in electric utility supplies from the level forecast

to 1980 in the study.   Thus the benefit of any additional

gas supplies will not accrue to electric utilities.

     Assuming that electric utilities bear the brunt of

curtailments to the extent that their 1980 supply is ex-

pected to be only 5.8 percent of its level in 1973,  there is

still a drastic impact on industrial supplies.   Even with

the optimistic assumption that new interstate reserves addi-

tions amounted to 6.4 Tcf per year from 1976 onwards,
\_l   FRC data for 1973.   Texas, Louisiana, Oklahoma and
     New Mexico excluded.
                         IV-15

-------
resulting in production from new reserves amounting to 2,386



Bcf in 1980, as compared to production from current reserves



of 7,794 Bcf in that year, the supplies for industrial users



would be barely 47 percent of their 1973 level.  If produc-



tion from new reserves is less than projected, industrial



curtailments will rise further.   Even if new reserves were



in excess of those illustrated,  industrial users could



easily absorb the resulting production.



     The consumption of natural  gas by industries varies



considerably from region to region in absolute amount, in



proportion of national industrial usage, in comparison with



consumption for other uses in the same region, in distribu-



tion between firm and interruptible sales, in share of the



industrial market served by interstate supplies, and in



rapidity with which industrial curtailments are expected to



become significant.



     Along the Atlantic Coast, comprising the regions of



New England, Appalachia and Southeast, industrial supplies



will probably be substantially reduced well before 1980



unless substantial new reserves  are obtained by pipelines



serving the regions.  The situation of Tenneco and Trans-



continental Gas Pipe Line Corp.  are typical in these regions,



and their extremely severe supply losses in the near future



will all fall on industrial users, since the magnitude of



electric utility gas consumption, excluding that transported



to Florida, plants, is relatively small.  Industrial users





                          IV-16

-------
in the Southeast obtaining supplies from Southern Natural



Gas Co., however, have a future supply outlook somewhat



better than the rest of the Atlantic Coast.



     The Great Lakes region faces largely the same situation



as that prevailing along the Atlantic Coast.  Based upon



production projections from presently dedicated natural gas



reserves, the interstate pipelines which serve significant



shares of the market, except for Michigan Wisconsin Pipe Line



Co.,  anticipate substantially reduced industrial loads well



before 1980.  Even on Michigan Wisconsin, industrial service



will probably be substantially cut.



     Despite having had a cushion of electric utility gas,



amounting to nearly 20 percent of the regional consumption



in 1973, the Northern Plains region is expected to experi-



ence very rapidly declining industrial supplies.  Its domi-



nant pipeline suppliers, Northern Natural (which delivered



over half of the region's gas in 1973) and Natural Gas



Pipeline Company of America, both project rapidly falling



deliverability from current reserves.  Only the dedication



of substantial new reserves to pipelines serving the region



would, to some degree, reduce prospective industrial curtail-



ments .



     Far less pessimistic is the future of industrial sup-



plies to the interstate portions of the Mid-Continent region.



One factor which partially cushions the impact of curtail-



ments on industrial users is the existence of 37 percent






                         IV-17

-------
regional consumption by electric utilities in 1973.   Another


factor is the relatively less severe supply forecast for

Cities Service Gas Co., which may satisfy a significant por-


tion of its industrial needs, even in 1980, from currently


dedicated reserves.

     Industrial consumption in the Gulf Coast is mostly sup-

plied from intrastate sources, and is discussed separately.


     The Rocky Mountain region, served largely by Colorado

Interstate Gas Co.,  faces less severe losses of industrial

supplies, based upon existing reserves.  Curtailment of


industrial demand is expected to increase steadily,  although


it is possible that firm industrial customers may not be

curtailed to any significant degree until nearly 1980.


     The situation in the Pacific Southwest, dominated by


California, and by El Paso Natural Gas Co., indicates signi-


ficant possible industrial curtailments in 1975.  By the

late 1970's, based upon production estimates from currently

dedicated reserves,  much industrial consumption may be

eliminated except for those customers obtaining some portion

of Pacific Gas § Electric's imported Canadian supply.

     Because the Pacific Northwest region has substantial
                                »
supplies of gas imported from Canada, which are not projected


to decline during the period studied, its  industrial supply


outlook is better than for California.  However, with elec-


tric utility consumption almost nil, and with residential


and commercial usage smaller than in most  parts of the Nation,



                          IV-18

-------
any supply losses on that part of the region's natural gas

originating in the Southwest part of the United States will

be reflected proportionately in industrial curtailments.

     In short, the industrial outlook is worst along the

Atlantic Coast and Great Lakes, slightly better, if at all,

in California and the Pacific Southwest, and better in

varying degrees in other parts of the U.S.

     The following section describes step by step the fore-

cast of gas availability for power plants in California.

Electric utilities in California consume more gas than elec-

tric utilities in any other state in the predominantly inter-

state market and the forecast for California is considered

representative of the interstate market.
Forecast of Gas Supplies Available
to California Steam-Electric Power
     The forecast of annual supplies of natural gas available
                            «
to the 35 California steam-electric power plants considered

in this study is based upon the increasing domestic shortage,

interstate and intrastate, of natural gas supplies available

to the state since 1970,   The shortages require curtailments

of gas deliveries instituted under curtailment plans pre-

scribed by the Federal Power Commission (Commission) for

two—  of the three interstate pipelines delivering gas at


I/   El Paso Natural Gas Company and Transwestern Pipeline
     Company.  The third pipeline, Pacific Gas Transmission
     Corporation, transports Canadian gas to California for
     the account of Pacific Gas and Electric Company.   Suf-
     ficient quantities of gas are expected to be available
     to PGT to avoid curtailments of deliveries.

                         I V - 1 9

-------
the state border,  and by the California Public Utilities

Commission (PUC)  for gas utilities under its regulatory

jurisdiction.

     The purpose  of the Federal and state curtailment plans

is to protect  gas  service to residential, small commercial

and industrial,  and other consumers where alternative fuels,

oil and coal,  are  infeasible to obtain or to use.   Under

both the Commission and PUC orders, the steam power plants

are the first  to  have gas deliveries curtailed; i.e., have

the lowest priority of service on days when gas is in

short supply and  therefore must use alternative fuels for

electric generation.

     Twenty-two of the 35 California power plants are sup-

plied with gas directly or indirectly by Southern California

Gas Company (SCG).—   Twelve (its own plants) are supplied

with gas by Pacific Gas and Electric Company (PG§E).   The

remaining plant—  is supplied by a California gas producer,

Atlantic Richfield Company.

     The calendar year 1973 is the base year used for the

forecast of gas supplies for the California power plants.

The forecast method employs for SCG and PG§E:  (1)  the cur-

tailment plans of El Paso and Transwestern;  (2) El Paso's

estimate of the distribution of natural gas requirements in



\_l   San Diego Gas and blectric Company buys it entire gas
     supply from SCG including that burned in power plants.

2_/   Mandalay Plant of Southern California Edison Company.

                         IV-20

-------
its market area by the priority steps of its curtailment

plan (referred to as the "end-use profile"); (3) the propor-

tions of total gas supplies received from the interstate

pipelines and from California production; (4) the projections

of future supplies, 1974-1980 from interstate pipeline

sources and local production; (5) the estimated additional

gas supplies available for use in power plants because of

the 1974-1975 recession and the conservation of gas; (6) a

summation of the foregoing in the form of the percentages of

1973 power plant deliveries available for the 1974-1980

requirements; (7j a test of (6) against reported actual

power plant gas supplies in 1974; and (8) application of the

percentages in (6) to each of the 34 California power plants

served by SCG and PG§E to forecast gas supplies for the

years 1975 through 1980.-^

     Transwestern curtails gas deliveries under the Commis-

sion's prescribed plan with nine priority of service steps.

El Paso curtails under a five-step priority of service plan

prescribed after hearings by the Commission.  Despite the

differences in number of priority steps, the plans are es-

sentially the same and both provide that deliveries to power

plants will be the first curtailed during periods of gas

shortages on the pipelines.  The PUC plan for SCG and PG§E
\J   The volumes of actual deliveries for 1973 and 1974 are
~~    available from the EPA tabulation and monthly reports
     to the Commission on FPC Form 423.
                         IV- 21

-------
also provides that steam electric plants will be curtailed

first.

     El Paso has supplied data on the end-use of system gas

deliveries by the five priority-of- service steps of its

curtailment plan.  The steps of the plan and the percentage

of system gas deliveries applicable to each step are shown

in the table below.
                 EL PASO NATURAL GAS COMPANY
                CURTAILMENT PLAN AND END-USE
            GAS REQUIREMENTS OF SYSTEM CUSTOMERS

          Priority of Service	  End-Use Profile
                                            (percent)

     Residential, small commercial needs
     (less than 50 Mcf on a peak day)          38.4

2.   Large commercial, industrial feed-
     stock, process and plant protection
     needs.  Storage needs.                    16.6

3.   All industrial needs not covered in
     (2) ,   (4) and (5).                         20.5

4.   Boiler fuel use, 1500-3000 Mcf per
     day.   !_/                                   0.9

5.   Boiler fuel use over 3000 Mcf per
     day.   !_/                                  23.6

                                              100. 0

\_l   Where alternative fuel capabilities (exclusive
     of propane and other gaseous fuels) can meet
     the requirements.

Source:    El Paso Natural Gas Co. tariff and filings with
          the Federal Power Commission.
                         IV-22

-------
     As the table shcnvs,  large boiler fuel use such as for

steam electric plants comprises about 23.6 percent of the

total gas requirements supplied by El Paso -- some 75 per-

cent of which are in California.  El Paso supplied about 50

percent of California's total 1973 gas receipts through

sales to SCG for resale in Southern California and to PG§E

for resale in Northern California.  The large proportion of

El Paso's deliveries of the total California gas supply and

the wide geographical distribution to final consumers of

this gas support applications of the El Paso end-use profile

percentages in the table to allocate 1973 base year California

supplies among the five priority of service steps as a start-

ing point in the forecast of future gas supplies for the

California power plants.

     The tables below show the 1973 gas supplies of SCG and

PG6JE by supply sources and the allocation of total gas sup-

plies of each company by the El Paso priority of service

steps (end-use profile).
            SOUTHERN CALIFORNIA GAS COMPANY AND
              PACIFIC GAS AND ELECTRIC COMPANY
           1973 GAS SUPPLIES AND SOURCES OF SUPPLY

                               SCG             PG§E
                         Bcf   Percent     Bcf   Percent

1973 Gas Supply          96_6    100.0     1020    100.0

Suppliers
  El Paso"                610     63.1      378      37.1
  Tran.^western           274     28.4       --  ,     --   .
  Pacific Gas Trans.      --  .    --   ,    S63-7,    3,5.6-/,
  California Producers    82-7    8.5-7    279-'    27.3-7

a/   Estimated.

Source:    1973 Annual Reports, Form 2, to the Federal Power
          Commission; 1973 California Gas Report to the
          California Public Utilities Commission.

                         IV-23

-------
             SOUTHERN CALIFORNIA GAS COMPANY AND
              PACIFIC GAS AND ELECTRIC COMPANY
       ALLOCATION OF 1973 GAS SUPPLIES BY PRIORITY OF
      SERVICE STEPS OF THE EL PASO NATURAL GAS COMPANY
                      CURTAILMENT PLAN

                                 SCG
                                (Bcf)       (Bcf)

          1973 Gas  Supply        966-/     1020-/

          Priority  of Service
          Steps
1
2
3
4
5
371
161
198
9
227
392
170
209
9
240
          a./   Estimated.



     The next step in the  forecast is to project the gas sup-

plies available to SCG and PG$E for the years 1974 through

1980 from each supply source shown previously.   All sources

except Pacific Gas Transmission are estimated to experience

declining supplies.  PGT supply is expected to  remain the

same as 1973 since the basis is Canadian gas reserves.   The

El Paso and Transwestern projections are taken  from their

Annual Reports of Gas Supply,  Form 15,  to the Commission.

The California gas production estimates ard supplies from

PGT are taken from the 1973 California  Gas Report.

     The table on the following page summarizes the projected

future gas supplies of SCG and PG$E from a]1 sources determined
                            IV-24

-------
as described  above for the calendar  years  1974 through 1980

Columns  (3) and  (5)  show the anticipated reductions from

1973 in  total gas  supplies.
    SOUTHERN CALIFORNIA GAS COMPANY AND PACIFIC GAS AND ELECTRIC
          COMPANY PROJECTED TOTAL GAS SUPPLIES 1974-1980
             AND SUPPLY REDUCTIONS FROM 1973 SUPPLIES
                    (Billions of Cubic Feet)
                     SCG
PG&E

Year
(1)
1973
1974
1975
1976
1977
1978
1979
1980
Total Gas
Supplies
(2)
966
892
779
695
643
594
546
503
Reduc t ion
from 1973
(3)
—
74
187
271
323
372
420
463
Total Gas
Supplies
(4)
1020
869
800
746
723
687
656
625
Reduction
from 1973
(5)
—
151
220
274
297
333
364
395
     The projected reductions  from  1973 in total gas  supplies

represent  anticipated further  curtailments of gas services

over those  required in 1973.   These would be applied  ordinar-

ily to reduce  the 1973 power plant  deliveries in Step 5  under

Federal and state curtailment  plans as shown in the table  on

the following  page.
                               1V - 2 5

-------
             SOUTHERN CALIFORNIA GAS COMPANY AND
              PACIFIC GAS AND ELECTRIC COMPANY
       ESTIMATED TOTAL GAS SUPPLIES FOR POWER PLANTS

                  (Billions of Cubic Feet)

                         SCG                  PGSE
  1973 Gas Supply        227                   240
  1974 Reduction         (74)                  (151)
  1974 Supply-Volume      153                    89
  Percent of 1973         67.41                 37.083
     However, it is estimated that for the years 1974 and

1975 and some part cf 1973,  additional volumes of gas should

be available to the power plants as a result of conservation

of gas use by the residential customers and the effect of

the nationwide recession on industrial gas requirements.

The effect of these reductions in demand by the^e other sec-

tors translates to somewhat over 14 percent when applied to

1974 power plant gas supplies and would increase the percent-

age of 1973 supplies shown in the above table from 67.4 to

82.04 for SCG and from 37.08 to 51.73 for PG$E.  The  same

percentage increases are assumed for 1975 but not for the

years 1976 through 1980.-/

     The following table sums up the curtailment effect of

the estimated reduced gas supplies, 1974-1980, heretofore

described on all market sectors supplied by SCG and PG§E

with particular emphasis on future power plant gas supplies.

I/   The effect of conservation would be offset by growth
~    in 1976 under current California policy.
                              IV-26

-------
     Section A of the table shows the anticipated gas cur-

tailments on the SCG system in accordance with the El Paso

and California curtailment plans—  adjusted in 1974 and 1975

for additional gas supplies transferred to power plants from

residential and industrial requirements as a result of con-

servation practices and the recession.  The anticipated re-

ductions in system gas supplies for 1973 occurring in the

years 1974 through 1980 are deducted first from Step 5 --

power plant deliveries -- until these are fully suspended

(beginning 1976) and thereafter deducted from Steps 4, 3,

and 2 (in 1980) as needed.

     Section B of this table shows the similar results of

future curtailments on the PG§E systems calculated as des-

cribed for Section A of the table.

     Section C isolates the estimated power plant supplies

only and adds the  percentages  of  1973 gas  deliveries  expected

to be available to the power plants; 82.04 percent of 1973

in 1974 and 32.26 percent in 1975 for SCG, and 51.73 percent

and 22.98 percent, respectively, for PG§E.  The forecast

percentages of 1973 power plant supplies show the steep de-

clines expected, particularly by 1975, and the zero level

of deliveries in 1976 and thereafter.
!_/   As previously noted, the Transwestern curtailment plan
     is in  practical effect the same as that of El Paso.
                              IV-27

-------
                 ESTIMATED GAS SUPPLIES AVAILABLE  TO
      SOUTHERN CALIFORNIA GAS AND PACIFIC GAS & ELECTRIC COMPANY
                            1973 - 1980
Priority of
Service Steps
         TOTAL
     (Billions of Cubic Feet)


1973   1974   1975   1976   1977
                         1978   1979   1980
                            A.
                SCG
1
2
3
4
5
371
161
198
9
. 227
371
161
198
9
186
371
161
198
9
73
371
161
163
—
—
371
161
111
—
—
371
161
62
—
—
371
161
14
—
—
371
132
—
—
—
 966
925
812
695
643
594
546
503
                                 PG&E
1
2
3
4
5

392
170
209
9
240
TOTAL 1020
392
170
209
9
124
904
392
170
209
9
55
835
392
170
184
—
—
746
392
170
161
—
—
723
392
170
125
—
—
687
392
170
94
—
—
656
392
170
63
—
—
625
                       C.   Power Plant Supplies

             /                   SCG
     5    Bcf^'    227    186     73
       % of 1973   100.0   82.04  32.26  —

             /                   PG&E
     5    Bcf-     240    124     55
       % of 1973   100.0   51.73  22.98  —

I/   From Step 5 of Sections A and B of this table.
      Since the forecast percentages shown in Section C  of

the  table will be applied to  actual 1973 gas deliveries of

each of the  34 power  plants supplied  by SCG and PG§E to
                                 IV-28

-------
forecast future supplies,  the 1974 derived percentages were

compared as shown below with actual 1974 percentages for

SCG and PG§E to the extent that data are available.
                GAS SUPPLIES TO POWER PLANTS
                  1974 AS A PERCENT OF 1973

                           SCG         PG§E
     Section C            82.04        51.73
     Actual 1974          79.60
     12 months ending
        6/30/74            --          66.30
     12 months ending
        9/30/74            --          53.90
Source:  Table 6, 1973 California Gas Report; Pacific Light-
         ing Corporation Annual Report Supplement 1974 for
         SCG; PG$E Prospectuses, October 9 and December 17,
         1974.
     In addition, in the 1973 California Gas Report, SCG

forecasts 94 percent curtailment of total steam-electric

plant requirements in 1975, 98 percent in 1976 and 97

percent in 1980.  PG§E forecasts in the Report that no

deliveries of gas will be made to its own power plants (98

percent of total power plant gas requirements) during

the years 1975 through 1982.

     The foregoing tests of the estimated percentages

of 1973 power plant gas supplies indicate that the per-

centages are sufficiently accurate within the limits of

present information and anticipated future trends of gas
                        IV-29

-------
supplies  available to SCG  and  PG§E to forecast  the gas supplies for

the 34 California power plants.

     A sample of the forecast  of gas supplies  to one of the

22 power  plants supplied by  SCG  is shown below.   The same

format and  method were used  for  the remainder  of the plants

supplied  by SCG and PG§E.


             CITY OF BURBANK PUBLIC  SERVICES - BURBANK PLANT

Gas Supplier:  Southern California Gas Company

Source of  Supply:   Calif.  El Paso   Transwestern
                  Prod.   N.G.  Co.   Pipeline Co.   Total
1973 Actual         5.9%     65.0%       29.1%      100.0%

                                                 Millions  Billions
                                                 of C.  F.  of  Btu —
5.

/ 106
i- 87
71 gq
*-' 34
:ed) 0
9% 65.0%
Millions of Cubic
1169
959
1089
377
0
29.1%
Feet
523
429
487
169
0
                                                 1798
                                                 1475
                                                 1675
                                                  580
                                                    0
1875
1538
1747
 605
   0
1973 (Actual)
1974 (Estimated)-
1974 (Actual)
1975 (Estimated)-
1976-80 (Estimated)

\l   1973 supply x 82.04%.
2J   1973 supply x 32.26%.
_3/   At average 1043 Btu per cubic foot.

     The  percentages used  in the forecast for  the Burbank Plant

are  those for the total  gas  supplies for all of the power plants

supplied  by  the SCG.  Total  percentages are used also for the

irdividual plants supplied by PG§E.   Since these are system

average forecast percentages,  deviations will  occur among the

individual plants as shown above for Burbank in 1974.  However,

as  total  gas supply for  the  power plants declines sharply the

deviations  in 1975 and  subsequent years should be minimal.
                           IV-30

-------
This view is supported by the predictions of SCG and

PG$E in the 1973 California Gas Report as stated above.

     The Mandalay plant of Southern California Edison Com-

pany obtains over 99 percent of its gas supplies from

California production by purchases from Atlantic Richfield

Company, a gas producer.  The forecast of future gas supplies

from California production available to this plant is that

made by Southern California Edison in the 1973 California

Gas Report.  The estimated supplies vary from 66.7 percent

of 1973 in 1975, to 18.6 percent in 1980.



B.   Projections for Predominantly
     Intrastate Markets	

     In the composite, gas consumption by electric utilities

in the states of Texas, Louisiana, Oklahoma and New Mexico

is projected to decline by 21 percent between 1973 and 1980.

This projected decline reflects only to a limited extent the

impact of curtailments by interstate pipelines, since electric

utilities in these states acquire most of their gas through

intrastate sources.   More importantly, the projected decline

reflects deteriorating supply conditions in intrastate mar-

kets .

     Due to ceilings on prices for gas which interstate

pipelines could pay, intrastate pipelines for many years

have been successful in obtaining a large proportion of new

gas found in the onshore producing areas .  Most of new gas

reserves attached by interstate pipelines have come from the

Federal Domain offshore Louisiana.  However, although


                         IV-31

-------
intrastate pipelines have attached a large share of new on-

shore reserves,  the overall level of onshore reserves addi-

tions has been inadequate.

     It is estimated that in 1973, total intrastate produc-

tion (consumption)  of gas was 8.8 Tcf.   From 1969 to 1973,

total onshore reserves additions in the U.S. averaged only

5.7 Tcf per year.   Thus,  the total amount of new gas theore-

tically available for intrastate consumption has been insuf-

ficient to support  current levels of consumption.

     Texas is a case in point.   In 1973, electric utilities

in Texas burned more than one-third of the total volume of

gas consumed by electric utilities in the United States, and

over half of the gas burned by electric utilities in what is

denoted herein as the predominantly intrastate market.

Total Texas intrastate production in 1973 was approximately

4.9 Tcf,  which accounted for most of total gas consumption

by all sectors in this state.  Total reserves additions in

Texas have averaged less than a third of these consumption

volumes.  Thus, total gas supply for consumption in Texas

may gradually diminish in coming years.—

     As a result of these adverse supply trends, some cur-

tailments in Texas  have already occurred.  The Texas Rail-

road Commission has placed electric utility boiler fuel in
I/   In 1974, both interstate and intrastate production de-
     clined in Texas.
                           IV-32

-------
a low priority in the event of curtailments by pipelines.



Moreover, reflecting the deteriorating supply-demand outlook,



and the potential impairment of gas service to industrial



customers, the Texas Railroad Commission is considering the



phaseout  of electric utility gas consumption.



     The forecasts developed herein may be considered as



"business as usual" and do not take into account potential



future regulatory reactions.  For each of the electric



utilities burning gas, the supply situations of their



respective suppliers were reviewed.  Reflecting the differing



supply situations of various suppliers of gas to power



plants, some diversity of trends is projected for the power



plants on Schedule IV-1.  Sources of data included annual



reports to stockholders and prospectuses of both buyers and



sellers of gas, as well as reports by the Texas Railroad



Commission.



     Although gas consumption by electric utilities is pro-



jected to decline, this "business as usual" approach also



suggests increasing curtailments of industrial plants.



There will be trade-offs between industrial and electric



utility gas consumption in Texas, but the quantification of



that trade-off is precarious unless assumptions are made as



to future regulatory actions.




     The projections for Oklahoma show modest increases in



gas consumption through 1980.  This forecast contrasts with



those for all other states, but reflects the unique situation
                        IV-33

-------
in Oklahoma.   Two companies in that state accounted for 90



percent of electric utility gas consumption, and both have



been relatively successful in acquiring new gas supplies.



Both have significant control over the disposition of their



gas either through ownership of the pipelines or the actual



gas reserves.  In their 1974 annual reports to stockholders,



both companies provided estimates of gas supplies for elec-



tric generation which have been incorporated into the pro-



jections on Schedule IV-1.  A review of the overall gas



supply-demand situation in Oklahoma also suggests sufficient



gas availability for electric generation and industrial



needs.



     Electric utility gas consumption in New Mexico is pro-



jected to decrease from 1974 to 1976, reflecting curtail-



ments by an interstate pipeline serving part of the state.



From 1976 to 1980, electric utility gas consumption is shown



to be stable, reflecting the apparent circumstances of the



major intrastate seller of gas in that state.  The gas burn-



ing utilities in New Mexico do not foresee major curtail-



ments of gas service by intrastate suppliers.  These favor-



able circumstances result from the increasing exploratory



effort in southeast New Mexico based upon increased intra-



state prices.



     In Louisiana, electric utility gas consumption is pro-



jected to decrease by 35 percent between 1973 and 1980.  A



substantial portion of this decline in the  first two years
                            IV-34

-------
of the forecast is attributable to worsening curtailments by



interstate pipelines.  These curtailments will also reduce



gas consumption by industrial concerns buying interstate



gas.   However, the intrastate pipeline system in Louisiana



has been quite successful in obtaining new gas supplies, and



some electric utilities and industrial consumers have been



able to acquire gas supplies directly from producers.



According to available annual reports by electric utilities,



plants tied to intrastate supplies are in no imminent



j eopardy.
                          IV-35

-------
                        CHAPTER V

     THE CURRENT AND PROJECTED USE OF ALTERNATIVE FUELS
             BY GAS-BURNING UTILITY POWER PLANTS
     As indicated in the previous chapter, the amount of gas

available to electric utilities throughout the United

States will diminish substantially.  The impact of the gas

shortage on electric utilities will be to shift a sub-

stantial portion of their energy needs to other fuels.  It

is thus the purpose of this chapter to analyze the ability

of gas-burning power plants to use alternate fuels, and to

appraise the potential alternate fuel demand by electric

utilities in light of reductions in gas supply.

A.   Current Alternate Fuel Burning Capacity of Gas-
     Burning Electric Utility Power Plants	


     Each of the 415 gas-burning electric utility steam

generating plants previously designated has been analyzed

with special emphasis on its primary fuel requirements

and ability to burn alternate fuels.  As an initial but

integral step in this analysis, a summary of key data

from Form 423's and the FPC Form 36's is set out on Sched-

ule V-l.  The Form 36, "Emergency Fuel Convertability Ques-

tionnaire," presents data which was filed in February 1973

and is in some cases outdated, but represents the only

available data on a relatively consistent basis of alternate

fuel burning capacity and is a useful starting point.
                            V-l

-------
     Column (1) of Schedule V-l lists for each region and



state the gas-burning power plants included in the 415 plant



study; Column (2) shows the amount of gas burned by each plant



in 1973; and Column (3) shows the 1973 megawatt rating of the



plant.  Based upon a print-out of Form 423 data for calendar



year 1974 obtained by Foster Associates, Inc., from Applied



Data Research, Incf, Columns (4) through (7) indicate the



relative purchases of oil, gas and coal for each plant.  Column



(8) identifies the fuel or fuels which the plant was originally



designed to burn, taken from Steam-Electric Plant Factors,



published by the National Coal Association.  Column (9) gives a



verbal description of the alternate fuel capabilities of



the plants.  This verbal assessment largely reflects the



FPC Form 36.  In some cases where the 1974 fuel consumption



indicated substantial change in fuel burning capability



since the end of 1972 (the effective date of the Form 36



data), and other factors partially confirmed that this



had occurred, the Form 36 data were modified accordingly.



     Thus, for example, the first gas-burning power plant



listed is Kendall Square, owned by Cambridge Electric



Light Company in Massachusetts.  The plant burned 500



million cubic feet in 1973 and has a 67 megawatt rating.
                             V-2

-------
In 1974, 41 percent of its fuel consumption came from gas



and 59 percent from oil, and the Form 36 indicates that oil



is the primary fuel.  It may then be surmised that a re-



duction in gas deliveries could be accommodated by greater




utilization of oil without plant modification.  As in many



other cases, the original fuel burning design (Column (8))



had been modified over the years.



     Schedule V-2 is a state-by-state summary of the data



from Schedule V-l with the plants grouped by state and




FRC region.  The number of plants, megawatt rating, and



1973 gas consumption are given for four categories of



plants, defined as follows:



     (1)  Gas is the primary fuel but an alternate fuel



          could be burned with no boiler-generator de-



          rating .



     (2)  Gas is the primary fuel and an alternate could



          be burned, but some derating would result or



          the alternate could not be burned in all boilers.



     (3)  Gas is the primary fuel and no alternate exists.



     (4)  Gas is a secondary fuel and is indicated as be-



          ing burned as an alternate fuel or in conjunc-



          tion with other fuels.



While  che states are listed by FRC region in both Schedule



V-l and Schedule V-2, in the following analysis they have



been grouped according to similar consumption patterns.



                            V-3

-------
B.   Summary of the Alternate Fuel Capability
     in the Interstate Market	


     New England proper, New York, Pennsylvania, New

Jersey, Delaware, the District of Columbia and Maryland

constitute an area in which gas was generally consumed

as an alternate fuel for oil.  Gas was burned in 27 plants

in these eleven states in 1973, and was considered to be

an alternate for oil in 24 of these.  Two plants burned

gas as an alternate for coal, and one plant burned gas

and oil on a co-equal basis.  The total 1973 electric

utility gas consumption in these states was 73.0 Bcf (46.8

Bcf in New York), or 2.2 percent of the U.S. power plant

total.

     A second group of states which exhibited similar con-

sumption patterns was that of:  Virginia, West- Virginia,

Kentucky, Tennessee, North Carolina, South Carolina,

Georgia and Alabama.  In these eight states gas was again

mainly a secondary fuel, but the principal fuel in this

region was coal rather than oil.  The 18 plants in this

area which burned gas in 1973 consumed a total of 62.5 Bcf,

less than 2 percent of the U.S. total.  Of these 18 plants,

13 were fueled primarily by coal, 1 by oil, and 2 burned

gas along with another fuel.  The 16 plants in which gas

played a secondary role accounted for 93 percent of the

region's gas consumption.  The two remaining plants, one in

Alabama and one in Georgia, considered gas to be their pri-

mary fuel.  However, both plants possess full alternate
                            V-4

-------
fuel capabilities, and would suffer no boiler derating if an



alternate fuel were consumed.



     The seven state area of Ohio,  Illinois, Indiana, Mich-



igan, Iowa,  Wisconsin and Minnesota combined for a total



1973 gas consumption of 189.4  Bcf,  just under 6 percent of



the U.S. total.  Some 36 percent of the gas total was burned



in 24 plants which considered  this  fuel to be their primary



source of energy.   Of these 24 plants, 17 had full alternate



sources of power (usually coal), 5  would suffer some minor



derating if an alternate were  burned,  and 2 had no alternate



fuel capability.  The 7 plants with either limited or no



alternate capability consumed  19.2  Bcf in 1973, slightly more



than 10 percent of the region's total  consumption. Gas was



usually burned as  an alternate for  coal in this region.  In



43 of the 80 gas-burning plants gas was considered to be an



alternate fuel.  Coal was listed as the primary fuel in 41



of these 43 plants, which accounted for 47 percent of the



area's 1973 gas consumption.  Gas was  burned in conjunction with



either oil or coal in an additional 13 plants,  which consumed



17 percent of the  region's gas in 1973.



     A six state area accounted for 11.8 percent of the



electric utility gas consumption in 1973, with  70 plants



burning 401.3 Bcf.  The six states  were:  Colorado, Kansas,



Nebraska, Missouri, Arkansas and Mississippi.  The utilities



of this region placed heavy reliance on gas, but in most



cases alternative  sources of energy were available under
                             V-5

-------
certain limiting restrictions.   The majority of the plants

in this area (52 of 70) considered gas to be their primary

fuel.  In all but one of these  52 plants, an alternate

fuel could have been burned in  place of gas.  While only

one plant had no alternate capability, 27 of the 52 plants

would either suffer some degree of boiler derating when

burning an alternate fuel, or they could not consume an

alternate in all boiler units.   The impact on each plant

when burning an alternate is described in Column (9) of

Schedule V-l.  Of the 52 plants which burned gas as their

primary fuel, 33 listed oil as  their alternate, 10 listed

coal, 8 listed both oil and coal, and one had no alternate.

     The State of Mississippi was included in this region,

and at first glance might seem  out of place, since four

of the state's seven plants indicated that they had no

alternate fuel capability.  However, the oil consumption

in each of these four plants has increased substantially

in every year since 1972 as a result of gas curtailments.

The 1974 data shows the percent of total Btu consumption

derived from oil to range from 21 percent to 82 percent for

the four plants, with three of  the four over the 66 percent

mark.i' These plants were therefore placed in the category


I/   Mississippi Power § Light  Co., the major gas-burning
~    utility in the state, has  spent over $50 million to
     modify  its plants to burn oil as well as gas.  Mississippi
     Power Company, the second major gas-burning utility in
     the state, was curtailed 69 percent of contracted supply
     in 1973 and 80 percent in 1974.  As a result, the company
     is now  generating approximately 65 percent of its power
     with coal, as well as increasing amounts of fuel oil .

-------
of having gas as a primary fuel with oil as a partial



alternate.



     Virtually all gas consumed by electric utilities in



Arkansas is received from interstate suppliers on an interruptible



basis.  The Arkansas Power § Light Co.  accounted for 90 percent



of electric utility gas consumption in 1973, but has increased



its dependence on fuel oil over the past two years due to gas



curtailments.  It has made plans for both a nuclear and a



coal-fired plant, using Wyoming coal.



     North Dakota, South Dakota, Montana, Wyoming and Utah



constitute an area in which gas played a minor role in the



electric utility sector.  None of the  eight plants in this



region which consumed gas considered it to be their primary



fuel.  It was listed as an alternate for coal in five of



the plants, and an alternate for oil in the other three.



(However, one plant in South Dakota which listed oil as the



primary fuel did consume about three times as much gas as



it did oil in both 1973 and 1974.)  These five states burned



7.2 Bcf in 1973 on an alternate fuel basis, 0.2 percent of



the U.S. total.



     The dominant characteristics in Arizona, Nevada, Cali-



fornia and Florida, were:  (1) substantial gas consumption;



and (2) high degree of substitutability between oil and



gas.  These four states consumed nearly 20 percent of the



electric utility sectors' gas in 1973,  and virtually all of



the 673.3 Bcf burned could have been replaced by oil.  In



fact, the 1974 consumption data suggests that a switch from





                             V-7

-------
gas to oil was being made in a number of plants in this



area.



     California epitomizes this group of states.  The 35



plants in California burned 441,6 Bcf, over 13 percent of



the U.S.  total.  Of these 35 plants, 34 listed gas as the



primary fuel with oil as an alternate.  In 1974, over 40



percent of the total Btu consumption in 22 of the 35 plants



was derived from oil.  A similar situation was observed in



both Arizona and Nevada, where 14 of the 16 gas-burning



plants listed gas as the primary fuel and oil as the alter-



nate.   In Arizona, 8 of the 11 gas plants received over



48 percent of their total 1974 Btu's from oil.  The Nevada



plants were of similar design, and substantial amounts of



oil were consumed in 1974, but the pattern of oil-for-gas



substitution was not as striking in this state.



     Florida was included with these West Coast states



because it fits the two established criteria.  Gas consump-



tion in Florida totaled 145.8 Bcf in 1973, and nearly



all electricity generation could have been fueled by oil with



no boiler derating.  Florida was similar to the other states



in that the overwhelming majority of plants (25 of 27)



burned some combination of oil and gas, with both fuels



being significant sources of energy.  Although only 5 of



the Florida plants listed gas as the primary fuel, 18 of



the total 27 operated on a fuel supply which was at least



one-third gas.
                           V-8

-------
     The next three-state area is that of:  Idaho, Oregon,



and Washington.   In these states gas played little or



no role in the generation of electricity in 1973.  The only



state reporting gas consumption was Oregon, and this was



in two small plants which were generally used for standby



service.  The total consumption of 2.4 Bcf for this area



in 1973 was less than 0.1 percent of the U.S. total.



     The 283 electric utility steam generating plants located



in the interstate market burned 1,409.2 Bcf in 1973.  Virtually



all of the power generated by gas in these plants could have



been fueled by either oil or coal, with the majority of the



plants suffering little or no boiler derating when consuming



an alternate fuel.   Gas was considered to be the primary



fuel in 132 of the  283 plants in which it was burned; these



plants consumed 936.0 Bcf in 1973.  Plants in which an alternate



could have been burned numbered 95 with no boiler derating,



and these plants consumed 50 percent of the gas consumed by



electric utilities  in the interstate market.  An alternate



fuel could have been burned in 34 plants with some derating,



ranging from 5 to 25 percent.  In 3 plants there was



no alternate available for gas.  Plants in which the burning



of an alternate would entail some derating consumed 15 percent



of the total, while those with no alternate consumed less than



1 percent.  Gas was burned as a secondary fuel in 151 of the



283 plants.  These  plants burned 473.2 Bcf, just under 34



percent of the interstate total.
                           V-9

-------
     In summary, 84 percent of the gas consumed by electric

utilities in these states in 1973 could have been replaced

by oil or coal with no loss in generating capacity.   An

additional 15 percent of the gas could have been replaced under

some relatively minor boiler derating.  The remaining gas

consumption, less than 1 percent of the total, could riot

have been replaced by an alternate fuel.  Thus, gas curtailments

in the interstate market would have minor effects on the

generation capabilities of steam-electric power plants, assuming

alternate fuel would be available.

     In terms of alternate fuels which would have been consumed

if gas had not been available, 1,043 Bcf of gas could have

been replaced by oil.  This represents 74 percent of the total

gas consumption by electric utilities in the interstate market.

Coal could have been substituted for 352 Bcf, 25 percent of the

total JL/   The  remaining 1  percent  had  no alternate available.

The substitution of these fuels for gas in all boilers would

result in relatively minor deratings.   A total gas curtailment

would decrease the megawatt rating in the interstate market

by less than 21.  The majority of the plants affected are

located in Nebraska, Kansas, Missouri, Arkansas, Mississippi,

    Illinois.
I/   The fuel which a plant would substitute for gas may not
     be apparent in all cases from the information contained
     in Schedule V-l.  For example, a plant with 8 coal boilers
     and 2 gas/oil boilers would have more than one option
     available in the event of a gas curtailment.  It could:
     (1) increase the output of the 8 coal boilers, or (2)
     substitute oil for gas in the two gas/oil boilers.  The
     estimates here are based on the boiler-by-boiler require-
     ments in the plants and the plants ' uti li zation of coal and
     oil in the past.
                           V-10

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C.   Summary of the Alternate Fuel Capabilities
     in the Intrastate Market	

     Some 58 percent of all gas consumed by the electric utility

sector in 1973 was burned in the four-state area of Texas,

Louisiana, Oklahoma and New Mexico.   The combined consumption

total for the year was 1,981.9 Bcf.   The striking features of

this region were:   (1) gas was the primary fuel in virtually

every plant (131 of 132); and (2)  the majority of the plants

(96 of 132) were listed as having  no alternate fuel capability.

     Texas was the leading gas consumer in 1973 with 80

plants burning 1,277.8 Bcf.  A total of 64 of these 80 plants

were listed as having no alternate capability.  In the 16

plants in which an alternate could have been burned (9 of

which would suffer some boiler derating),  oil was the alternate

fuel.

     Louisiana burned 369.4 Bcf in 23 gas  consuming plants,

16 of which had no alternate fuel  capability.  A total of

270.9 Bcf was consumed in the 16 Oklahoma  plants, and 63.9

Bcf in New Mexico.  In Oklahoma, 10  of the 16 plants had no

alternate capability, and the ratio  was 6  of 13 in New Mexico.

In the plants in which an alternate  fuel could have been

burned, including those which would  suffer some derating,

oil was the choice in all plants in  both Louisiana and

New Mexico.  In Oklahoma 4 plants  listed coal as an alternate,

and 2 listed oil.
                            V-ll

-------
     At this point it becomes necessary to consider a rather



important time-lag problem.   As mentioned previously, the



Form 36 data were submitted in early 1973.  The assessment



of each company with regards to its alternate fuel capability



was made in light of the general conditions which prevailed



at that time.  Over the past two years a number of factors



have significantly altered the status of some companies.   The



supplies and prices of fuels available to electric utilities



have substantially changed,  FPC and state regulatory agency



activities have increased, and the general economic climate



is vastly different than it was in 1973.  As a result of



these and other factors, some companies have been forced



to make changes previously thought to be unfeasible.



     The majority of the plants in the four-state area



were designed to burn gas, with the possible use of oil in



emergency situations.  Oil combustion in a gas plant is



possible, but only for short periods and usually with some



boiler derating.  To convert a plant from emergency oil-



firing to one which could burn either oil or gas for extended



periods of time, is an undertaking which requires both time



and capital investment.  The magnitude of these variables



will depend on the original design of the specific plant



under study.



     Because of the proportion of plants in this area which



indicated that gas was the primary fuel with no alternate
                             V-12

-------
available, further research was deemed necessary to ascertain



the present status of the major electric utilities in the



four-state region, as well as in Arkansas and Mississippi as



discussed in the preceding section.  The 1973 and 1974 Annual



Reports to Stockholders of these companies were reviewed.



The general climate in these states appears to be one of



uncertainty with regards to gas supply.  Not only are the



gas supplies contracted on an interruptible or interstate



basis thought to be in jeopardy, but also the viability of



some firm intrastate contracts appears to be in question due



to curtailment priorities established by state regulatory



authorities.  The unclear picture regarding future gas supplies



has led a number of companies to diversify their fuel base,



both by increasing the convertability of gas plants to oil,



and by designing new plants for gas/oil, coal, lignite and



nuclear fuels.



     Power companies in Oklahoma have apparently seen little



need for major plant conversions.  Two companies burned over



90 percent of the electric utility gas in the state in 1973,



and both consider their gas supplies to be in solid shape.



Oklahoma Gas § Electric Co., the major electric utility in



the state, operates solely with intrastate supplies and this



company contracted substantial amounts of new reserves in



1974.  However, they do plan a future gradual shift towards



low-sulfur coal.  The Public Service Co. of Oklahoma owns



its supply system, with most gas reserves in the system dedicated
                            V-13

-------
for the life of the wells.   This company has just completed



what they feel may well be the last major gas-fired plant



in the country, but they too foresee a future shift towards



coal.  The shift from gas to coal in Oklahoma is merely in the



planning stages and seems to be applicable to new plants only.



Thus, most plants will operate almost exclusively on gas with



little conversion activity in the near future.



     The situation in Louisiana is somewhat mixed, with both



interstate and intrastate supplies of gas.  Louisiana Power



and Light Co., Gulf States Utilities Co., and New Orleans



Public Service Inc. accounted for over 80 percent of the



state's 1973 utility gas consumption.  All three receive a



portion of their gas from the same interstate supplier, and



there have been serious curtailment problems with this supplier.



As a result they have tried to stabilize their fuel situation



by increasing their conversion potential and also by seeking



more intrastate gas.  Of the 10 plants operated by these three



companies, six are undergoing some degree of conversion to



enable them to burn oil for longer periods.  The following



statement from the 1973 Annual Report of New Orleans Public



Service, Inc. summarizes the situation of a number of utilities



in the state:  "The severe curtailment of natural gas purchased



under contract by the company for fuel to generate electricity



has forced greatly increased use of oil as a power plant fuel.



A portion of approximately $12.5 million spent on new construc-



tion during the year was needed to continue modifications begun
                            V-14

-------
in 1972 at Michoud and Patterson stations to permit the



burning of oil for extended periods of time."



     In Texas a large segment of the electric utility indus-



try receives its gas from sources not subject to FPC regulation.



Recent actions by the Texas Railroad Commission, however, have



placed the status of all gas used as a boiler fuel in some



doubt.  The proposed phasing out of gas as a boiler fuel,



coupled with higher intrastate gas prices and curtailed inter-



state deliveries, has caused a good deal of activity in this



gas dominant state.  Six of the major consuming utilities,



which burned nearly 75 percent of the state's electric utility



gas in 1973, indicated that operations are underway to increase



their ability to burn oil.  The conversions will not allow



complete oil-firing in all units, but they will lessen the current



dependence on gas.  Millions of dollars are being spent on



converting plants to a multiple fuel capability, oil storage and



handling facilities are increasing, and a number of plants



under design will operate on coal or lignite.  The largest gas-



consuming utility in the state, Houston Lighting and Power,



reported in its 1974 annual report that it presently has more



than 1,700,000 kilowatts of generating capacity which can burn



oil or gas continuously.  This amount will increase to 4,350,000



kilowatts in 1975, and 5,100,000 in the future.  This company will



also expand its oil storage capacity to 6.7 million barrels by



1977, and an intra-company oil pipeline is under construction.
                            V-15

-------
The company was hit by curtailments of 12.3 percent by one



of its two major gas suppliers in 1974, and has therefore



extended and revised its second gas contract to satisfy current



needs.  They estimate that the new contract will provide the



company with 64 percent of its fuel requirements through 1978,



and 20 percent from 1979-1984.  The outlook of this company



typifies that of others in the state, and may be summarized



by the statement that the amended gas contracts will "facilitate



an orderly transition from fuel-burning capability based almost



entirely on natural gas to one based on natural gas and other



fuels, including oil, nuclear and coal."



     The gas-burning plants in New Mexico are similar to



those in Oklahoma in that gas supplies are largely of an intra-



state nature, and little conversion has taken place at this



time.  Both the Public Service Company of New Mexico and



Southwestern Public Service Company, with 6 gas plants and



60 percent of the state's 1973 consumption, expressed confi-



dence in their natural gas supply.  The Public Service Company



of New Mexico emphasized a new contract which extends through



1989 and the reassurances of its intrastate suppliers, while



Southwestern Public Service Company pointed out that all of



its gas is intrastate and 25 percent of the reserves are from



dedicated wells.



     Thus, alternate fuel requirements in the four-state



(intrastate) region are difficult to assess.  Texas, Oklahoma,



Louisiana and New Mexico plants consumed 58 percent of the
                            V-16

-------
U.S. electric utility gas supply in 1973.  The Form 36 data



indicate that the majority of the plants in these four states



(96 of 132) could burn only gas.  Further research indicates



that their alternate fuel capability has significantly



increased since 1973, and will continue to do so in the future.



Plant modifications have been most noticeable in Texas and



Louisiana, two of the largest gas consumers in the electric



utility sector.  The companies in these two states have



initiated serious efforts to diversify their fuel base.



They have sought to: increase the ability of gas plants to



burn oil, design future plants for multiple fuel firing, and



increase experimentation with fuel forms previously unexploited



in this area (coal, lignite, nuclear).  The exact number of



plants which have undergone conversion or will undergo



conversion cannot be estimated at this time, but some efforts



have been made by most utilities in the two states.  Gas



will continue to be the primary fuel in the near future, as



long as it is available and remains a feasible energy source,



but precautionary measures are being taken.



     The majority of the gas plants in New Mexico and Oklahoma



have little or no alternate fuel capability at this time.



Due to favorable gas reserves positions, the companies in these



two states have shown little desire to decrease their dependence



on gas, although some mention was made of increased use of coal



in future plants in both states.
                            V-17

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     Thus,  this four-state region is vastly different from the

rest of the country.   Gas is the primary fuel in far more

plants, and alternate fuels may not always be substituted

for gas.   A total dependence on gas exists in many more

plants than in the rest of the country, but not as many as

might be  inferred from Schedules V-l and V-2.  Oil could

have replaced 210 Bcf in the four-state area, 11 percent

of total  consumption in this region.  Coal could have been

burned in place of 27 Bcf, 1 percent of the total.  A large

portion of the gas burned, 868 Bcf or  44 percent, could not

have been replaced by an alternate fuel.  The residual 44 percent,

or 877 Bcf, was of a questionable status.  It was burned in

plants which have undergone some conversion,  but the degree

of conversion is unknown at this time.   It may only be said

that the  most probable alternative to these 877 Bcf is oil.

Any estimation of the total boiler derating when burning

alternate fuels in these four states would be highly

speculative at this time.  The overall  effect would be

far more  significant than in the interstate market, but to

determine an exact magnitude would require an extensive plant

conversion study as insufficient data now exists.

D.   Projections of Alternate Fuel Demand by Electric
     Utilities Due to Reductions in Gas Supply	

     Schedule V-3 shows the estimated use of alternative fuels

by electric utilities due to reductions in gas supply from

1973 to 1980.  The declines in gas consumption are attributed
                            V-18

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to one of three categories -- demand for coal, demand for



fuel oil, and demand for indeterminate fuels.   The latter



category reflects plants which are indicated to have limited



or no known alternative fuel burning capability at this time.



By integrating the plant by plant projections  of natural gas



availability from Chapter IV with the plant by plant analysis



of alternative fuel burning capability, the forecasts show



for each state the effect of the gas shortfall on existing



power plants.  It should be noted that no consideration is



given to the need for overall increasing generation, and the



resultant increase in demand for other fuels due to the



unavailability of gas.



     On Schedule V-3, column (2) shows for each region and



state the amount in trillions of Btu's of gas  consumed in 1973.



Columns (3) through (20) show, as a result of  declines in gas



volumes, the displaced demand for alternative  fuels.  For



example, in 1973 electric utilities in New England burned



5.7 trillion Btu's of gas.  In 1975, the reduction in gas supply



from 1973 levels is estimated at 0.2 trillion  Btu's.  Column



(4) shows that the plants suffering this reduction have alter-



native fuel burning capability in terms of fuel oil.  Thus,



it is projected that in 1975 electric utilities in New England



will burn an increment of 0.2 trillion Btu's of fuel oil due



to a comparable reduction in natural gas availability.
                            V-19

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     It should be noted that on the schedule certain data



are shown in brackets,  denoting negative demands for alternative



fuels.   This situation  indicates that natural gas consumption



is projected to increase from 1973 levels, resulting in a



decline in demand for an alternate fuel.  Thus, for the State



of Minnesota as an example,  column (4) shows a negative 1.6



trillion Btu's.  This means  that in gas burning plants with



fuel oil burning capability, gas consumption in 1975 is



projected to increase by 1.6 trillion Btu's in 1975 compared



with 1973.  In cases where bracketed values appear in the



"indeterminate" column  (see  Oklahoma for example), this means



that increases in gas consumption by plants which do not



have alternate fuel capability are projected.



     The schedule shows that in 1973 gas consumption on the



part of power plants in the  U.S. analyzed herein was 3436.1



trillion Btu's.  In 1975,  reductions in gas consumption by



these plants is projected to result in the consumption of



103.6 trillion Btu's of coal and 589.7 trillion Btu's of oil.



Some 27.5 trillion Btu's of  the decline in gas consumption is



"indeterminate" -- will take place in plants which have limited



or no known alternative fuel burning capability.



     By 1980 the shortfall in gas deliveries would require



additional coal consumption  of 348.5 trillion Btu's and



additional fuel oil consumption of 1074.0 trillion Btu's.



The remaining portion of the net reduction in 1973 gas
                            V-20

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consumption -- 272.6 trillion Btu's -- would take place in

plants which at this time have limited or no known alternative

fuel burning capability.  Excluding those plants which have

limited or no known alternative fuel burning capability but for

which increases in gas consumption are projected, the reduction

in gas deliveries by 1980 to plants which have limited or no

known alternative fuel burning capability would be 348.8 trillion

Btu's.

E.   Deterrents to the Use of Alternate
     Fuels by Electric Utilities	

     The conversion of a gas-only plant to a coal based unit

would entail major modifications to the boiler/furnace unit

resulting in a substantial derating of the unit.  These modi-

fications would be of such a magnitude that the construction

of a totally new and separate coal plant might offer a more

feasible alternative.

     Additional space at the plant site would have to be

available for coal storage and intra-plant coal car movement.

In addition, provisions for on-site disposal of sludge and

ash might be required.  Environmental quality standards

would necessitate the utilization of electrostatic precipi-

tators and possibly stack-scrubber devices for the control

of ash and sulfur oxide emissions, both of which require

additional plant space.
                            V-21

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     The conversion process would further be severely



hampered by the physical size of the boiler/furnace unit.



Gas units tend to be relatively smaller than oil or coal



units due to favorable flame characteristics and also because



gas is a clean burning fuel producing no waste products.



Coal releases soot and ash when burned, which can cause



severe corrosion and slagging problems.  Slagging, the



excessive accumulation of ash particles between the water



tubing throughout the boiler/furnace, might not even be



corrected with the addition of soot blowers unless all



tubing was re-spaced at wider intervals, which entails



essentially a rebuilding of the boiler.  The addition of an



ash hopper would require the elevation of the entire unit,



which could be equivalent in size to the fourteen story



building.



     A conversion from gas to oil is a far more manageable



task, although a number of modifications would have to be



made for continuous oil-firing.  Gas recirculation fans



would have to be added to:  prevent the overheating of



wall tubing, aid in increasing super reheat temperatures,



and reduce sulfur oxide emissions.  The clogging caused by



ash deposits would require the installation of soot blowers,



and also necessitate periodic water washings.  Additional



superheat and reheat surfaces would be required because of



the lower temperature of the oil-firing process, a situation
                            V-22

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only partially alleviated by the addition of gas recirculation



fans.  The oil flame would create a high heat flux in the



wall tubes, and these tubes would tend to overheat if the



flame was of a sufficient size to obtain maximum plant



capacity.  Thus the unit might be forced to operate below



capacity.



     Plant site modifications would include the addition



of unloading and storage facilities, as well as pumping



and heating stations (for fuels that are viscous) if pipeline



deliveries were to be used.  Two final modifications necessary



for residual, but not distillate oil-firing, would be the



addition of steam coil air heaters and a small ash hopper.



If low-sulfur oil (less than seven-tenths of one percent)



was not available, high-sulfur oil would further complicate



the conversion process.  Measures would have to be taken to



prevent vanadium corrosion, and the higher ash and sulfur



contents would require the use of electrostatic precipitators



and some type of SC^ emission control device as in the case



of gas-coal conversion.  Finally, sludge and ash disposal



would again have to be dealt with.



     The cost of converting facilities from gas to other



fuels will vary from plant to plant.  As an example, evidence



before the Texas Railroad Commission by Houston Lighting



and Power Company in the proposed curtailment plan case of



Penzoil Pipeline Company indicates that the cost is substantial



In 1973 Houston Lighting and Power Company operated ten steam-



electric plants with a generating capacity of 7,375 megawatts.






                            V-23

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The company felt that a conversion to coal was virtually

impossible, and that a conversion to oil for all units would

require a project seven to ten years in duration with an

investment in excess of $100,000,000 ($13.56/kilowatt of

capacity in 1973 dollars).

     In many instances there may be little economic incentive

for utilities to burn alternate fuels.   Generally, gas is a

lower priced fuel than either oil or coal.  In 1974, the

average price of gas burned by electric utilities was 48
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     The use of gas is most significant in four FRC regions:



the Northern Plains, Mid Continent, Pacific Southwest, and



Gulf Coast.  The percent of total utility energy needs



met by gas in these regions ranged from 23 percent in the



Northern Plains to 82 percent in the Gulf Coast in 1973.



All states in these regions place a heavy reliance on gas,



with the exceptions of North Dakota and South Dakota.



     The utilities in five of the remaining six FRC regions



rely on fuel oil or coal to a much greater extent than gas



to meet their energy needs.  In these regions only Florida,



Colorado, and Utah derived more than 10 percent of their



total requirements from gas.  However, even though the



market share of gas in some of these states is small, the



impact of a curtailment should not be minimized.  For example,



gas supplied less than 7 percent of the power for New York



utilities in 1973, but this amounted to 47 Bcf and a total



curtailment would require the substitution of 7.7 million



barrels of oil or 2.1 million tons of coal.
                           V-25

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                                   TECHNICAL REPORT DATA
                           (Please read Instructions on the reverse before completing)
1  REPORT NO.
  EPA-450/3-76-030a
                             2.
                                                           3. RECIPIENT'S ACCESSION-NO.
4. TITLE AND SUBTITLE
  Impact of Natural Gas Curtailments  on Electric
  Utility Plants—Two Volume Report:   Volume I, Text,
  and  Volume II, Schedules  (Data  and  Summary Tables)
             5. REPORT DATE
               August 1975
             6. PERFORMING ORGANIZATION CODE
7 AUTHOR(S)

  Brickhill,  J.A.
                                                           8. PERFORMING ORGANIZATION REPORT NO.
9. PERFORMING ORGANIZATION NAME AND ADDRESS
  Energy Division
  Foster Associates, Inc.
  1101  Seventeenth Street, N.W.
  Washington, D.C.  20036
                                                           1O. PROGRAM ELEMENT NO.
             11. CONTRACT/GRANT NO.


               68-02-1452,  Task 1
12. SPONSORING AGENCY NAME AND ADDRESS
  U.S.  Environmental Protection Agency
  Office  of Air Quality Planning  and Standards
  Strategies and Air Standards Division
  Research Triangle Park, North Carolina  27711
             13. TYPE OF REPORT AND PERIOD COVERED
               Contract Report	
             14. SPONSORING AGENCY CODE
15. SUPPLEMENTARY NOTES
  EPA  Project Officer:  Rayburn  Morrison
16. ABSTRACT
       This  study was conducted  to analyze the impact  of natural gas curtailments
  on  electric utility plants  through the review of  the curtailment plans of  inter-
  state pipeline, intrastate  pipeline and gas distributors.   This analysis determined
  the availability of natural  gas  through 1980 to 415  electric utility power plants,
  the alternate fuel burning  capability of these plants  and  the impact of gas  cur-
  tailments  on the need for alternate fuels such as  fuel  oil  and coal.  The  study
  results  are presented in a  two volume report:  the first contains the narrative
  with pertinent findings and conclusions; the second  contains the schedules or data
  summaries.
17.
                               KEY WORDS AND DOCUMENT ANALYSIS
                  DESCRIPTORS
b.lDENTIF'ERS/OPEN ENDED TERMS  C. COSATI Field/Group
 Fuels
 Natural  gas  curtailments
 Steam  plants
 United States
 Government
 Regulations
 Air  pollution
  Natural  gas
  Electric power
      generation
  Air pollution control
18. DISTRIBUTION STATEMENT
                                              19. SECURITY CLASS (ThisReport)
                                                Unclassified
                                                                         21. NO. OF PAGES
                                158
  Unlimited
20. SECURITY CLASS (Thispage)

  Unclassified	
                                                                         22. PRICE
EPA Form 2220-1 (9-73)
                                            V-26

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30
CD
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