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Natural Gas: Gas and electric industries seek a happy codependence as gas-fired generation is on the rise

by Bill Malcolm, guest author

“Gas is from Venus, electricity is from Mars,” quipped Sue Kelly of the American Public Power Association to me in July at the NARUC Conference in Denver. In a nutshell, this summarizes the complex challenge of helping to better coordinate these two industries.

 

With the increased use of natural gas for electric generation, efforts are underway to better coordinate the way the two industries operate.  A quick overview of the two industries shows the issue is as complicated as the two divergent industries:

 

 

Natural Gas Industry

Electric Industry

Fully unbundled

A split between vertically integrated and partially unbundled business models

Producers choose when and where to expand production in fully competitive market

Mixed model. Generation expansion occurs under regulated “rate-base” model in parts of U.S.; elsewhere competitive wholesale markets often offer three-year capacity markets in many RTOs (one-year in MISO, none in ERCOT or California)

Each pipeline operated independently

Transmission systems in much of the country are operated regionally through RTOs; elsewhere system operators must cooperate

Gas can be stored until needed

Very limited storage (mainly pumped storage and use of hydro)

Gas pipelines usually expand based on long-term customer agreements (15-20 years)

Transmission lines usually expand based on regulatory approval to put costs into all customers’ rates

Most gas is traded for a full day, full month, or even longer

Electricity is traded hourly, and in RTO markets bought/sold through RTO every five minutes (although long-term purchased power arrangements are common)

Gas trading days do not start at midnight (start in morning)

Electric trading days start at midnight

Scheduling changes during day are limited; most gas is scheduled once daily

Hourly scheduling changes allowed 24 hours per day; schedules can be changed every five minutes in RTO markets

Gas systems are designed for winter peaking

Electric systems are designed for summer peaking

Gas curtailment rules often make power plants lowest priority

Keeping electric system running is highest priority

 

 

Resulting concerns include:  

 

  • Operators of gas and electric systems don’t know what the other is planning to do on any given day. Better communication (and consistent nomination deadlines) between electric system operators including RTOs and interstate natural gas pipelines may be needed. 
  • Gas-fired generators that are providing firm capacity and are being counted on by electric system operators may not be able to obtain gas supply when they are dispatched. Requiring gas-fired generators to show they have firm fuel deliverability capability may be something to study.
  • On a cold winter day, gas-fired power plants may get curtailed, resulting in electricity outages.
  • Planned expansion of gas-fired generation may not result in needed expansion of gas infrastructure.

 

What's been done, and what's the position of those involved?

In an effort to provide certainty to the industry and remove barriers to the sharing of non-public operational information, the Federal Energy Regulatory Commission (FERC) issued a Notice of Proposed Rulemaking (NOPR), Communication of Operational Information between Natural Gas Pipelines and Electric Transmission Operators, in Docket No. RM13-17-000 on July 18, 2013.

 

The NOPR proposes to revise FERC regulations to authorize the exchange of non-public, operational information between electric transmission operators and interstate natural gas pipelines.

 

The NOPR also proposes to adopt a “no-conduit rule” to prohibit recipients of the non-public operational information from subsequently disclosing, or being a “conduit” for, the information to another entity. The NOPR was opened after numerous FERC workshops on the issue were held.

 

Comments filed on the FERC proposal include:

 

Interstate Natural Gas Association of America (INGAA)

INGAA encouraged the ISOs/RTOs to continue examining long-term changes to amend the restructured wholesale electric power market rules which fail to compensate generators for the cost of subscribing to services necessary to ensure electric reliability, regardless of the fuel needed to generate electric power.

 

INGAA says that it wants to work with stakeholders to explore changes to the gas day and nomination schedule that meet the needs of the growing electric power market and historic firm customers and consider the operational requirements of the producers. At the same time, INGAA says that the organized electric markets must work to review their electric day and dispatch schedules to ensure that generators are able to make timely nominations on pipelines.

 

INGAA also supports studying themodification of wholesale electric market rules to compensate generators for holding long-term pipeline transportation contracts and supporting infrastructure expansions.

 

American Public Power Association (APPA)

APPA believes that the Commission should encourage voluntary information sharing between generators and their electric transmission system operators. (APPA noted at a recent EISPC meeting the inability of shorter term “eastern style” capacity markets to support the signing of long-term firm gas transportation agreements to support new gas-fired generation.)

 

Electric Power Supply Association (EPSA)

EPSA requests that the Commission amend the language in the proposed rule to require generators to share information with transmission operators in the event of a “material possibility that the generator’s natural gas service may be disrupted.” This change would clarify that such a requirement would apply only in the event of a high probability of imminent failure of the generator’s natural gas service.

 

American Gas Association (AGA)

AGA says that communication improvements should not be seen as the only way of addressing natural gas and electric system interdependencies. Communications can supplement, but are no substitute for, the timely planning and construction of adequate natural gas infrastructure to meet growing power sector demands.

 

ISO New England FERC Docket

In another development, FERC recently ruled on an ISO New England proposal. In a dispute with the power generators, FERC agreed with ISO-NE in its proposal to impose performance obligation on capacity resources (barring economic outages based on decisions not to procure fuel or transportation). 


However, FERC also found that a demonstrated inability to procure fuel or transportation may legitimately affect whether a capacity resource is physically available and therefore may excuse nonperformance. 

 

What may happen next?

Numerous discussions and initiatives are ongoing around the country[1]. What will come out of these discussions is unclear. We will continue to watch this situation to see what, if any, actual changes move to implementation.


[1] For more details on these discussion and initiatives see State of Natural Gas and Electric Interdependency http://www. energycentral.com/ generationstorage/ fossilandbiomass/articles/ 2736/?utm_source=2013_10_01& utm_medium=eNL&utm_content= 65370&utm_campaign=PULSE_ WEEKLY and FERC's Gas-Electric Coordination Quarterly Report http://www.ferc.gov/ legal/staff-reports/2013/A-4- report.pdf 

 

About the Author

Bill Malcolm is a 37-year energy industry veteran who has worked for Seattle City Light, Pacific Power, PG&E, ANR Pipeline (now owned by TransCanada), and MISO. He currently is a freelance energy reporter and has a column in The Cruthirds Report (a Houston energy newsletter) on RTO and PSC matters. He holds a M.A. in economics from the University of Washington and a B.A. in economics from UC Santa Cruz. He also is a columnist in the Broad Ripple Gazette and has organized a new group, Hoosiers for Passenger Rail, in an attempt to save the daily Amtrak service from Indianapolis to Chicago.

 

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