POWER September 2013 - 76

COMMENTARY
The New Environment for the
Gas and Electric Industries
By Kelly A. Daly
N
atural gas-fired power generation has increased significantly
in recent years. This trend generally is considered a
positive development for several reasons: the abundance
of domestic natural gas reserves at reasonable prices, the environmental
benefits of natural gas relative to other fossil fuels,
the ability to efficiently site gas-fired generation in proximity to
load (thereby avoiding the cost of new transmission capacity),
and the quick-start nature of gas as a fuel source to backstop the
intermittent nature of renewable resources.
However, services offered by natural gas pipelines typically
are not designed to optimize the ramping demands and peaking
needs of electric generators. Rather, pipeline services are designed
for the predictable, even daily flow demands of local distribution
companies. As gas-fired power generation loads increase, pipeline
services, infrastructure, and procedures are being examined to assess
whether they are ready for the new environment where the
electric industry is the gas industry's biggest customer.
FERC Recognizes the Problem
Since 2012 the Federal Energy Regulatory Commission (FERC) has
spearheaded efforts to identify problems and facilitate coordination
between the natural gas and the electricity markets.
On July 18, 2013, FERC issued a Notice of Proposed Rulemaking
(NOPR) to permit interstate natural gas pipelines and public
utility electric transmission providers to share non-public, operational
information for the purpose of promoting reliable service
or operational planning on either system. FERC has also put in
place additional procedures to address gas and electric coordination
initiatives. The first requires each of the regional transmission
organizations (RTO) and independent system operators
(ISO) to appear before the Commission to discuss their past peak
season's operational experiences and identify steps that are being
taken to prepare for the upcoming peak season. The second
procedure requires FERC staff to provide quarterly updates on gas
and electric coordination activities throughout the country.
At a May 16, 2013, meeting, RTO and ISO representatives indicated
that FERC's natural gas and electric coordination initiatives
have resulted in voluntary procedures that encourage regional
organizations to confer with gas pipelines at least on a quarterly
basis and in advance of the summer and winter peak season.
These industry discussions focused on topics that enhance situational
awareness, including the availability of gas inventories,
long-range weather forecasts, planned maintenance work, and
other activity that could result in outages. One ISO indicated that
no new rules are needed. However, others acknowledged problems
with gas infrastructure not keeping pace with demand, with the
current process of pre-scheduling natural gas for weekends and
holidays (in advance of the energy day) and with generators lacking
access to needed gas supplies during peak periods.
76
RTOs and ISOs also reported on the efforts of working groups and
the status of various ongoing regional studies that will analyze the
adequacy of gas infrastructure and identify the potential impact
that outages on either industry could have on the other industry.
Change Is Coming
On June 20, 2013, FERC staff gave a quarterly update to the Commission
indicating that gas and electric coordination activity on
the national level has been significant. Specifically, the North
American Electric Reliability Corp. (NERC) released its Phase II
special assessment on gas and electric power interdependency,
which focuses on vulnerabilities that can affect bulk power system
reliability. As part of that assessment, NERC recommends incorporating
fuel availability into national and regional reliability assessments
and increasing the coordination and sharing of operational
planning information through formalized communication.
FERC staff also reported on task forces across the country that
are dedicated to gas and electric coordination. For example, efforts
led by the New England States Committee on Electricity
Gas-Electric Focus Group included discussion on proposals to
ensure adequate fuel supplies for next winter such as creating a
regional energy inventory of 4.2 million barrels of oil equivalent
for dual gas/oil-fired generators. In the Pacific Northwest, natural
gas pipelines and electric utilities are discussing enhanced
communications and coordination through the Power and Natural
Gas Planning Task Force meetings. And the Desert Southwest
Task Force is working on prioritizing problems with the objective
of recommending workable solutions that ensure the reliability
of the gas and electric systems during peak periods.
While regional solutions may help resolve some of the problems,
the majority of the gas and electric coordination issues
require guidance from FERC regarding policies that would be
applied on a national level. For example, should shippers with
firm gas transportation contracts be entitled to access gas supplies
(and " bump " interruptible contracts) later in the day in
order to satisfy unexpected demands and promote grid reliability?
And how can FERC ensure that a patchwork of regional
solutions will not act as barriers to the development of liquid
market centers by effectively prohibiting access to gas supplies
in other regions?
FERC's July 18 NOPR clearing the way for the exchange of
operational information between gas pipelines and electric providers
demonstrates the agency's willingness to systematically
address each of the difficult issues presented by this new environment
and provides encouragement that it is just a matter of
time before the issuance of a NOPR providing policy guidance on
FERC's natural gas scheduling and market structure rules. ■
-Kelly A. Daly is chair of the Energy & Environmental Division
of Stinson Morrison Hecker LLP.
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POWER | September 2013
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POWER September 2013

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