Commissioner Philip Moeller of the Federal Energy Regulatory Commission (FERC) sat down with GAS POWER Editor Thomas Overton at the recent ELECTRIC POWER Conference & Exhibition in Chicago to discuss FERC’s efforts on gas-electric harmonization, reliability, and the future of natural gas. The discussion has been edited for clarity.

GAS POWER: One of the biggest issues facing the industry is gas-electric harmonization. After the first call for input, you made a comment about being surprised by the volume of responses. What’s your sense of how far we’ve come since FERC began the process last year?

Commissioner Moeller:
I think we’ve come a long, long way from February and also even from August, because at the five technical conferences—I attended three in person—there were still a number of voices, even some from inside our building, saying, “What’s the problem here?” And now, I think, in the 15 months since I put that letter out, we have a new universal recognition that this is a challenge basically everywhere in the country. Not the same degree of challenge everywhere, but at a minimum people recognize that everyone has to be talking to each other when there are problems. And in some regions, it’s really quite urgent.

One impression I got from the reaction was the sense that this requires a mix of national and regional solutions. You’re naturally going to be more focused on the national solutions, but what do you think we’re going to see?

Well, I think you know that it’s a combination of both. There are regional differences. There’s very little coal and oil left in New England. New York has more dual-fuel capability. California already dealt with this issue a little bit with the depressurization of the pipelines after the San Bruno explosion. My home in the Pacific Northwest had a near miss a three years ago because of the lack of coordination. So everybody’s got their own regional issues, but universally, people have said, “You’ve got to stay on us. You’ve got to keep looking over our shoulders making sure that we continue to make progress. Only FERC is in a position to exert that authoritative presence.”

Obviously, communication is critical, but at a fundamental level we have a conflict of business models. It doesn’t really make sense for a lot of plants to purchase firm transportation service, but pipelines get built on firm transportation contracts. What’s the shift going to be?

Well, I think it’s going to be a multifaceted approach. Let’s start with New England. The ISO is starting a process for market rules that places greater value on firmness of fuel supply and has greater penalties for failure to perform. That would be the capacity options, though that’s several years away. They’re talking about rules related to enhancing dual-fuel and improving communications. But there needs to also be some way to aggregate the necessary demand in a way that actually translates to more pipe being built.

The other side of it is the regulatory side. You’re talking now really about the states being involved. They’re going to have to recognize that New England needs more infrastructure. It’s a particularly hard place to build infrastructure. But the way they’re going, they don’t have a choice, and that needs to be better recognized by the state governments and state agencies.

It’s worth noting that this didn’t take ISO-NE by surprise. They’ve been warning about the situation and the potential problems for several years.

That’s true. But in the last year, they’ve really ramped up their concern.

In your testimony to Congress on this issue a few months ago, you mentioned your concern that recent mild winters have masked vulnerabilities in the system. Do you think if we have a return to more normal winter weather, or unusually cold winter weather, is there the potential to see what happened in New England possibly happen elsewhere?

Oh yes, I think so, and that’s what I’m working to try to prevent. If we take the near miss in the Pacific Northwest, where there were a lot of LDC [local distribution company] customers who had their pilot lights relit, there was a case of people who could have spoken to each other but thought they couldn’t. So we need to clear that up.

In the Midwest, we have just this massive transformation going on of coal megawatts either being shut down, repowered, or retrofitted in a very tight timeframe. It’s a big challenge. MISO, to their credit, has dived into it, but they’re learning that there are 26 different pipes serving their area. They have to drill down to the risk, for example, if a plant is solely dependent on one pipe, that’s different from one that has more options. That’s going to matter, in particular if a specific plant in a little pocket is in a two-year retrofit stage and the other plant is necessary to maintain voltage. It’s going to be very, very specific in a very tight amount of time. Communications should help, but the Midwest isn’t that far behind New England in terms of reliability implications.

Do you think that, even if we can address harmonization issues to some extent, the current “dash to gas” poses threats to long-term reliability?

Yes. I don’t think they’re insurmountable problems, but any time you’re more dependent on a “just in time” fuel, your risks go up. I think NERC [North American Reliability Corp.] will be addressing that in a report that’s due in the next few weeks or so. [Ed.: The NERC report was released on May 22.] So yes, it adds risks. Hopefully it’s manageable risks.

There are a lot of other things we could go into, in terms of where demand is going, and if consumers could see more real-time pricing, we could see some good time-sensitive demand, and load shifts into the night, but those are for state regulators to ponder, not me. But I say, empower the consumers to make choices, and some amazing things will happen.

The reports that NERC released on LNG exports came out quite strongly in favor of them, and the president has also spoken favorably about exports. If we start exporting significant amounts of gas, do you think there are risks of price and supply volatility?

Well, it won’t be my decision, or the commission’s decision whether we export. I think it’s important for your readers always to understand what our role is. We’re a safety and environmental regulator, with an economic component. So we make the call as to whether the proposed project is worthy of a certificate, and we leave the export policy to the Department of Energy, as the statute says.

These are such expensive facilities, that while I can understand why they’re being proposed, really, in the end, I don’t think there will be that many built. I think it’s worth noting that we have been importing plenty of other people’s energy for decades—we couldn’t have gotten by without it—so it does seem a little hypocritical now to say that we won’t be exporting to willing markets.

Even though exports are ultimately not your decision, FERC still has to approve the facilities. There’s a perception in some quarters that there may be some foot-dragging going on with this issue.

If there is, it’s not my decision. I’m not saying there is or there isn’t. That’s going to be a function of the staff getting work done, and that can be highly dependent on the quality of the application that comes in, whether it needs some follow-up. The chairman has the power to delay something, but I’m not aware that he’s doing it.

The DOE, I know what they’re doing, but I have no idea whether they’re waiting or what their time frame is. I do think it’s pretty logical for them to wait for the secretary to be in place before they make a decision. [Ed.: In fact, the Freeport LNG facility was given export approval the day after Energy Secretary Moniz was confirmed by the Senate.]

So your sense is that we’re not going to see a huge amount of gas going overseas.

I suppose it depends on what you consider “huge.”

The numbers I’ve seen thrown around are about 4 Bcf/d to 6 Bcf/d. That’s sort of a consensus from the people I’ve talked to.

That doesn’t seem too disruptive to me. I’m not making this argument, but certainly you can, that added demand helps in a small way to keep prices at a point where you keep rigs in the ground. A sustained price has benefits for the production side.

As a final question, is there anything you believe the people in the gas power industry need to better understand?

I think they better make sure they know the other side of the coin. If they’re on the gas side, they need to understand the nuances of the electric side, and vice versa. Electric needs to understand gas better, because they’re two very different industries. Most people grew up in one or the other. You find a few, but not that many people have worked in both. The infrastructure is different; the speed of transmission of the energy is different. Sometimes the same words mean different things in each industry. And yet as they’re converging, they have to know each other.

As I said in the keynote talk, I point people to our NERC-FERC enforcement report that was released in August 2011, because if you’re afraid we’re going to ask for more information, there are good primers in there about how each industry works. We’re in this together now, and there’s no going back. They’re just converging, and everybody’s got to know more about the other side of the business.

—Thomas W. Overton, JD, POWER’s gas technology editor, conducted and edited this interview. 
Follow Tom on Twitter @thomas_overton.