Natural gas prices remain stable, subject to legislative impacts

Natural gas prices may be affected by new federal regulations including those related to pipeline safety.

The natural gas market has enjoyed an extended run of stable prices and ample supplies over the last several years.

But that may change, according to Jeff Keebler, MGE Senior Director of Energy Supply Procurement. Evolving federal regulations on three fronts could cause fuel prices to rise.

Pipeline safety. Recent concerns over pipeline safety have led to additional legislation being introduced in Congress—most recently the Pipeline Infrastructure and Community Protection Act.

"While oversight and regulation in this area are certainly important, with each new regulation comes added cost," Keebler noted.

Financial overhaul bill. The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions regarding the trading of commodities. This legislation will have an impact on the commodities markets, where utility fuels are purchased and traded."

Most people think of Dodd-Frank in terms of its impact on U.S. financial systems," he said. "However, the legislation added rules governing market transactions—including energy—that will impact the cost of those transactions and affect market liquidity."

Environmental regulations. Earlier this year, the Environmental Protection Agency (EPA) issued the Cross-State Air Pollution Rule (CSAPR). This legislation may have the greatest impact on energy costs.

CSAPR will replace the Clean Air Interstate Rule of 2005. CSAPR standards are more aggressive, requiring steep reductions in targeted emissions in short order, from 2012 to 2014.

The new rule requires reductions in nitrogen oxides (NOx) and sulfur dioxide from power plants in 27 states—mainly in the eastern and central United States. NOx emissions contribute to ground-level ozone, fine particulate pollution and acid rain. SO2 emissions contribute to fine particle pollution and acid rain.

To meet these new regulations, Wisconsin utilities may rely on more natural gas-fired generation that burns cleaner than coal generation.

"Wisconsin relies a great deal on coal," Keebler said. "Nearly 63% of our electric generation comes from coal, and these new rules would exact a cost over the next few years on both utilities and their customers."

Using more natural gas for electric generation could drive up natural gas costs in the next several years.

"Supply and demand have been very favorable in recent years for the commodity trading for our energy-generation needs," Keebler concluded. "These new regulatory impacts will likely raise natural gas costs."

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