Steptoe & Johnson PLLC: FERC Takes Further Action to Promote Gas and Electric Industry Coordination

By Kurt L. Krieger 

On March 20, the Federal Energy Regulatory Commission (“FERC”) issued three separate but related items as part of FERC’s ongoing efforts to address gas and electric industry coordination issues arising from the increased reliance on natural gas for electricity generation.

First, in a Notice of Proposed Rulemaking (“NOPR”), FERC proposed to amend its regulations relating to the scheduling of transportation service on interstate natural gas pipelines to better coordinate the scheduling practices of the natural gas and electricity industries, as well as to provide additional scheduling flexibility to all shippers on interstate natural gas pipelines.  Click here to view the NOPR.

Second, FERC is initiating a proceeding to ensure that scheduling practices by Independent System Operators (“ISOs”) and Regional Transmission Organizations (“RTOs”), particularly day-ahead scheduling practices, correlate with the NOPR’s proposed, revised interstate natural gas pipeline scheduling practices.  Click here to view the Order initiating the proceeding.

Third, FERC issued an Order to Show Cause requiring all interstate pipelines to submit filings to FERC within 60 days that either: revise the pipeline’s tariff to provide for the posting of offers to purchase released capacity; or that demonstrate the pipeline tariff’s compliance with FERC’s existing regulation requiring such posting capability.  The Order to Show Cause may be found here.

In the order initiating the proceeding pertaining to ISO and RTO scheduling practices, the FERC identifies the key coordination problem as follows (at Ps 7 and 8):

• First, the gas and electric operating days do not align.  The natural gas operating day begins and ends at 9:00 a.m. central clock time (CCT) and the electric operating day typically begins and ends at 12:00 a.m. local time.  Therefore, gas-fired generators committed across a single electric operating day must schedule gas transportation across two natural gas operating days.  Gas-fired generators must submit one daily schedule to the pipeline to cover the period from 12:00 a.m. local time to 9:00 a.m. CCT and a second schedule to cover the period from 9:00 a.m. CCT to 12:00 a.m. local time.
• Second, . . . the day-ahead scheduling timelines in the organized electricity markets do not align with those in the natural gas market.  The standardized natural gas scheduling system includes four nomination cycles:  two day-ahead nominations, the Timely Nomination Cycle at 11:30 a.m. CCT and the Evening Nomination Cycle at 6:00 p.m. CCT, and two Intra-Day cycles during the natural gas operating day.  . . . [and] [u]nder Commission policy and pipeline tariffs, once firm transportation is scheduled, it cannot be displaced, or bumped, by another firm nomination for that gas day.

In the NOPR (at Ps 8 and 9), FERC’s proposals include:

• Start the gas day earlier, at 4:00 a.m. Central Clock Time (CCT) instead of 9:00 a.m., in order to ensure that gas-fired generators are not running short on gas supplies during the morning electric ramp periods. 
• Start the first day-ahead gas nomination opportunity (Timely Nomination Cycle) for pipeline scheduling to 1:00 p.m. CCT (later than the current 11:30 a.m. CCT to allow electric utilities to finalize their scheduling before gas-fired generators must make gas purchase arrangements and submit nomination requests for natural gas transportation service to the pipelines. 
• Establish four (instead of two) standard intraday nomination cycles to occur at 8:00 a.m. CCT (bump), 10:30 a.m. CCT (bump), 4:00 p.m. CCT (bump) and 7:00 p.m. CCT (no-bump).  Bumping would not be permitted during the proposed final intra-day nomination cycle. 
• Clarification about FERC’s policy concerning the ability of a pipeline to permit firm shippers to bump an interruptible shipper’s nomination during any enhanced nomination opportunity proposed by the pipeline (beyond the standard nomination opportunities).
• A requirement that all interstate pipelines offer multi-party service agreements, similar to those already offered by some interstate pipelines, which agreements can provide multiple shippers the flexibility to share interstate pipeline capacity to serve complementary needs in an efficient manner.
• Also (at P 68), the NOPR observes that “[u]nder the Commission’s current regulations, pipelines must give scheduling priority to an intraday nomination submitted by a firm shipper over nominated and scheduled volumes for interruptible shippers.” And (at P 68, n. 92):  “Because we are proposing to include in the regulations the standard nomination cycles which specify when interruptible shippers’ scheduled quantities can and cannot be reduced, the first sentence of section 284.12(b)(1)(i)(A) to which the text refers is no longer necessary and we propose to remove it.”  That first sentence currently states: “A pipeline must give scheduling priority to an intra-day nomination submitted by a firm shipper over nominated and schedule volumes for interruptible shippers.”

FERC recognizes that the natural gas and electricity industries are best positioned to work out the details of changes in scheduling, and proposes that they attempt to reach consensus, through NAESB, and file that consensus within 180 days after publication of the NOPR in the Federal Register, or notify FERC of the inability to reach consensus.  Comments on the NOPR and any consensus report are to be filed within 240 days.

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