In a meeting held in Houston on April 22-23, NAESB’s Gas-Electric Harmonization (GEH) Forum continued its efforts to forge a consensus of natural gas and electric industry stakeholders in response to the Notice of Proposed Rulemaking (NOPR) on gas-electric coordination announced by FERC on March 20. (Docket No. RM14-2-000, available at http://tinyurl.com/mleskru.)
FERC’s NOPR proposes to modify existing NAESB standards establishing the start of the nationwide gas pipeline operations day and the related daily deadlines for submitting nominations and setting schedules for transportation of gas on the nation’s pipeline grid. But FERC stated that it is willing to consider any alternative proposal to improve gas-electric coordination on which the industries can agree. It therefore directed NAESB to provide a forum for stakeholders to try to develop an alternative approach, and provided a period of 180 days for that effort.
The purpose of NAESB’s April 22-23 GEH meeting was the presentation and clarification of stakeholders’ suggested alternatives to FERC’s proposed changes to the gas day and scheduling standards. Thirteen entities and groups presented their suggested approaches and answered questions from other stakeholders. The presentations describing the alternative proposals are available through NAESB, and are collected at http://tinyurl.com/qa5643c.)
The 13 proposals put on NAESB’s table reflect a broad range of views on this long-debated topic. Some presenters suggested that FERC is on the right track and offered relatively minor changes to portions of FERC’s proposals. As one might expect when this issue is involved, however, others advocated positions that bracket by considerable margins the suggested tweaks to FERC’s ideas.
At one end of that spectrum is the view shared by Washington Gas Light Company and Piedmont Natural Gas Company. In their joint presentation to the NAESB forum, they asserted that the real problem underlying FERC’s initiative is that organized wholesale power markets do not provide gas-fired electric generators sufficient compensation to justify the financial commitments needed to support building the new pipeline infrastructure that is required to meet peak electric generation demand in accordance with electric reliability standards.
In short, they said, “if natural gas is going to be successfully used to serve essential generation, key elements of the gas-fired generation fleet will require a similar combination of firm no-notice transportation and storage as the [gas] LDCs currently use.” (See http://tinyurl.com/kmecq7t.)
Therefore, as Washington Gas and Piedmont see it, before FERC requires operational changes that will inevitably create costs for gas pipelines and their customers, the regulators ought to pursue changes to the organized electric markets where reliance on gas-fired generation has raised reliability concerns. Specifically, Washington Gas and Piedmont advocate deferring for up to one year consideration of changes to the gas day and gas scheduling standards “until such time as electric interests reach a consensus on” the following items:
- The development of market or tariff mechanisms (e.g. shared or pooled capacity) to assure that “essential” gas-fired generation facilities in organized markets have access to delivered firm and no-notice fuel supply. “Essential” gas-fired generation is the generation capacity that organized markets plan to call on to meet estimated market demand at any time of the year.
- The adoption of a uniform, national electric day;
- The adoption of a uniform, national schedule for the day-ahead electric market; and
- That electric generators should be scheduled in the day-ahead market prior to the Timely Nomination Cycle for interstate gas pipelines (as found by FERC in the NOPR).
At the other end of the spectrum of proposals presented to NAESB is the alternative offered by the consultancy Skipping Stone and the Conservation Law Foundation (CLF). The premise of their proposal is that FERC’s NOPR is too limited. What is really needed, they say, is a much more comprehensive restructuring and coordination of gas and electric operating days and scheduling parameters.
Accordingly, they say, the objective of the NAESB process should be synchronization of both the operational and the “economic” days of both industries. By the latter, they refer to ensuring that both the gas commodity market and the market for released interstate pipeline capacity are most liquid during the hours when peak demands for both gas and electricity must be satisfied.
To accomplish this ambitious goal, Skipping Stone and CLF propose to create a single gas and electric “Energy Day” to begin at 6 a.m., and to complete gas scheduling and clear the capacity release market prior to that hour each day. They would coordinate gas and electric scheduling to provide that electric markets’ acceptance of generators’ day-ahead bids would be posted simultaneous with the opening of the capacity release market, during the timely day-ahead gas nomination cycle. Capacity release contracts would have to be completed before the close of the timely cycle.
Electric operators’ reliability assessments (the basis for out-of-market generation dispatch orders) would close one hour before the deadline for the evening cycle of day-ahead gas nominations. For electric markets, Skipping Stone and CLF propose standard peak hours of 6:00 a.m. to 10:00 p.m. and off-peak hours of 10:00 p.m. to 6:00 a.m. They also would establish four intra-day gas scheduling cycles, providing for two flow changes during the peak electric hours (12:00 noon and 5:00 p.m.), one flow change for the transition from peak to off-peak electric operations (10:00 p.m.), and one flow change midway through the off-peak hours (2:00 a.m.). (See http://tinyurl.com/okekp3o.)
The diversity of the proposals offered to the NAESB forum suggests that stakeholders will find it difficult to reach a consensus on an alternative to FERC’s proposed rules. However, debate on the merits of the FERC proposal and the proposed alternatives was expressly excluded from the April 22-23 program. NAESB began that part of its process at the following session of the GEH Forum on May 5-6, 2014, also in Houston.
NAESB has distributed a list of the issues on which NAESB members will be asked to vote, but the May 5-6 session included only straw polls on some of those questions. It is premature to predict the ultimate outcome of NAESB’s effort, but the group certainly has its work cut out for it to complete its task by NAESB’s self-imposed deadline to reach an agreement in principle on a consensus industry alternative to FERC’s proposed rules. In the event the NAESB forum does not produce an agreement, FERC will proceed with its rulemaking process, beginning with interested parties’ formal submission of comments on the proposed rules by Nov. 28, 2014.
Author: Michael Thompson has more than 30 years of experience representing natural gas and electric industry clients before FERC, state regulatory agencies, state public utilities commissions, and federal district and appellate courts. His work includes managing, litigating, and negotiating settlements in rate, rulemaking, and complaint proceedings; negotiating agreements for the development or transfer of energy infrastructure assets; litigating market power and other competition-related issues in regulatory contexts; and assisting with management of pre-construction environmental review and permitting for gas and oil pipeline projects. He can be reached at firstname.lastname@example.org, 202-393-1200.)