Enhancing electric reliability with storage-field generators

The U.S. natural gas industry has experienced two significant changes recently. First, consumption has increased since 1995, as electric utilities substitute gas for coal. Since electricity use is summer peaking, this new consumption smooths demand over the year. Second, the shale gas revolution has increased production and storage since 2005. This decreased prices, encouraging the coal-to-gas substitution. Frictions between the gas and electricity industries have, however, decreased electric reliability. Just as locating generators at coal mines decreases the cost of transporting coal, locating gas generators at storage sites increases reliability by decreasing these frictions. But because the increased reliability is external, and thus ignored by generators and infrastructure providers, FERC must provide incentives to coordinate investment in generation and storage to realize these gains.