FERC Takes First Steps in Harmonizing Gas and Electricity Markets

After two years of work, about a dozen conferences and meetings, and multiple rounds of comments, the Federal Energy Regulatory Commission (FERC) announced on Mar. 20 that it was ready to begin the process of changing its rules to better harmonize the natural gas and electricity sectors.

The process began in early 2012 when FERC first called for comments from the industry on various aspects of gas-electric interdependence, in light of the growing importance of natural gas–fired power and several incidents that had highlighted potential problems in making sure gas-fired plants had fuel to operate when needed, without disrupting supplies for other users. The response was enthusiastic enough that FERC scheduled a series of technical conferences to gather information and opinions on the best path forward.

One of the main issues that arose was the lack of coordination between the gas day and electric day. Both sectors use day-ahead scheduling, but some important physical and operational differences exist. While FERC recognized that some of these—such as vastly different storage methods and capacities, as well as different speeds at which gas and electricity travel—are inherent in the nature of the products, others involve business practices that have created arguably unnecessary conflicts.

End of the Guessing Game

For example, in many markets, gas-fired generators, most of whom rely on interruptible pipeline service, must reserve gas transportation services before they know for sure how much electricity they will be committing to produce. If they chose to wait until their commitments are known, they risk not having enough fuel to meet them. While not always a serious concern, this risk becomes acute during periods of constraint. (For some examples, see “New England Struggles with Gas Supply Bottlenecks” in the June 2013 issue and “About That Gas-Fired Power Boom…” in the April 2014 issue, available at www.powermag.com.)

Accordingly, FERC’s Mar. 20 Proposed Rule would do three things:

  • Move the start of the gas day up by 5 hours, from 9 a.m. Central Time to 4 a.m. Central Time.
  • Delay the start of the first day-ahead nomination opportunity for pipeline scheduling by 90 minutes, from 11:30 a.m. to 1:00 p.m.
  • Change the structure of the gas day to create four intraday nomination cycles from the current two.

The rationale behind these changes is to allow electric utilities to finalize their scheduling before gas-fired generators must submit nomination requests for gas transportation service to the pipelines, as well as to increase flexibility for shippers during the gas day. The gas day currently begins during morning ramp or morning peak periods for generators, which creates the risk they may run out of gas from the previous day. The change would reduce this risk by moving the start of the gas day well before the morning ramp.

Likewise, delaying the first nomination cycle would allow electric markets to clear when gas markets are most liquid, at the start of the day-ahead nomination process. Thus, gas generators would know what their commitments are before they must begin arranging fuel to meet them, allowing them to make reservations at the most economic time.

More Flexibility

The additional intraday nomination cycles are intended to address a couple of concerns. First, they will give independent system operators with large fleets of gas generators, like PJM, more flexibility in addressing real-time fluctuations in electricity demand.

Second, generators in the Southwest, where firm transportation service is more common for gas-fired plants, are handicapped in making the best use of it. Under the current system, the last nomination cycle in which these generators can request firm service and be assured of getting it is at 8:00 a.m. Pacific Time (the second intraday deadline at 2:00 p.m. Pacific does not allow firm shippers to bump interruptible service requested in an earlier cycle). This is a problem when peak demand in their area—which can spike rapidly as large amounts of solar go off the grid—does not occur until around 5:00 p.m., which greatly reduces the value of expensive firm service.

FERC’s proposed rule would change the current intraday nomination deadlines from 10:00 a.m. (bumping allowed) and 5:00 p.m. (no-bump) to 8:00 a.m. (bump), 10:30 a.m. (bump), 4:00 p.m. (bump) and 7:00 p.m. (no-bump) (all Central Time). Though some shippers already offer additional nomination cycles, this rule would standardize the practice nationwide. Further, for these shippers, the rule clarifies that bumping is permitted under such additional nomination schedules up until the no-bump deadline in the new rule.

The rule contains one additional change concerning transportation contracts. FERC currently allows—but does not require—pipeline companies to offer multiparty contracts under which multiple shippers can share in the same interstate capacity under a single service agreement. The change would make this option mandatory. The goal, again, is increasing options for gas-fired generators.

FERC is giving the gas and electric industries, through the North American Energy Standards Board, until Sept. 24, 2014, to reach a consensus on the proposed rule and any revisions. Whether or not a consensus is reached, comments on the proposal, and the consensus standards, if any, will be due 60 days later. ■

Thomas W. Overton, JD is a POWER associate editor (@thomas_overton, @POWERmagazine).