Quantifying the capacity value of natural gas efficiency in New England

Natural gas utilities in New England face increasing natural gas transmission system congestion and volatile spot gas prices. We observe that prevailing evaluation methods for natural gas efficiency programs value avoided firm pipeline capacity based on its total (‘gross') cost. We propose, consistent with deregulated electricity markets, to value avoided firm pipeline capacity at its ‘net’ cost. Specifically, we account for revenues associated with selling excess capacity during periods when the firm capacity holder does not fully utilize its rights. Our evaluation of commercial building efficiency programs suggests that prevailing evaluation methods could over-estimate the value of efficiency programs when those programs are intended to offset new capacity investments (i.e., the utility is in need of additional firm capacity). The situation is more complex for a utility with sufficient firm pipeline capacity to meet forecast load (i.e., consumption). In this case, the prevailing evaluation methods have the potential to under- or over-estimate the value of efficiency programs. The value of avoided infrastructure investments is likely to vary with the specific circumstances of the utility and the expected revenues associated with short-term sales enabled by available capacity. In the future, we recommend that economic regulators of natural gas distribution utilities, the state public utility commissions (PUCs), value avoided infrastructure investments at the ‘net' cost of the investment instead of the ‘gross' cost.