On 20 March 2014, the Federal Energy Regulatory Commission (Commission) issued a proposed rulemaking and two related orders designed to better align scheduling of gas flows with dispatch of electric generation and to improve flexibility associated with transportation of natural gas. The Commission’s actions come at an interesting time. As winter comes to a close, electricity customers in New England are experiencing a significant increase in electricity prices — increases that were not expected when ISO-New England met with the Commission last fall. The Commission’s orders appear to respond to conditions in New England, without specifically addressing whether these conditions are due in part to extreme-cold, pipeline constraints, disincentives to obtaining firm transportation capacity, or some combination of these and other factors.

Citing a steadily increasing reliance on natural gas as a fuel for U.S. electric generation, the Commission’s Notice of Proposed Rulemaking (NOPR) does the following: (i) proposes revisions to interstate natural gas transportation nomination deadlines to better align scheduling across the nation’s natural gas and electric grids; (ii) seeks to clarify the Commission’s “no-bumping” policy as it applies to enhanced pipeline services; and (iii) proposes to require interstate natural gas pipelines to offer multi-party service agreements in order to enhance flexibility associated with natural gas transportation service.

FPA Section 206 investigations initiated

In connection with the NOPR, the Commission also initiated an investigation pursuant to Section 206 of the Federal Power Act into day-ahead and reliability scheduling practices of regional transmission organizations (RTOs) and independent system operators (ISOs) to ensure that electric scheduling practices correlate to any changes in pipeline scheduling that result from the NOPR. After publication of a final rule, the Commission will require RTOs and ISOs to either propose tariff revisions to coordinate their day-ahead markets with any gas scheduling changes resulting from the NOPR process, or show cause why their existing scheduling practices need not be changed.

Interstate pipelines ordered to show cause

The Commission also issued an order under Section 5 of the Natural Gas Act requiring interstate natural gas pipelines to demonstrate compliance with existing Commission regulations requiring posting of offers to purchase released capacity or to show cause why such compliance is not required. Based on a sampling of pipeline tariff provisions, the Commission discovered that companies were not complying with these regulations. Compliance filings must be submitted by Monday, 19 May 2014.

NAESB collaboration encouraged

In the past, industry groups and standards-setting organizations such as the North American Energy Standards Board (NAESB) have called on the Commission to provide leadership designed to increase gas and electric industry coordination because such changes inherently require policy judgment. The Commission’s efforts to lead the dialogue on gas and electric industry coordination date back several years, and include Commission-led regional stakeholder meetings and information gathering in connection with investigations of recent gas and electric delivery failures during certain severe weather-related events. Until the NOPR, the Commission had not weighed in on whether changes in gas and electric day scheduling are needed. The NOPR establishes the policy guidance needed to allow standards-setting organizations to move forward with collaborative stakeholder efforts.

Commissioner John R. Norris released a statement supporting the Commission’s three actions and noting that “a more formal process with a specific timeline for action is needed now to bring together all segments of the gas and electric industries to find solutions to gas-electric issues facing our industry.” The Commission calls on industry to develop a consensus through the existing NAESB standards development process and provides affected industries with approximately six months to reach consensus. If NAESB efforts fail, the Commission will consider all comments received on the NOPR (due 240 days after publication of the NOPR in the Federal Register), and will act through rulemaking with the expectation that any changes implemented in the final rule will be incorporated into future NAESB standards.

Implications

The proposed rule, if implemented, will provide the nation’s generators and other pipeline customers with additional flexibility in scheduling their natural gas supplies. Such changes could help blunt seasonal price impacts in New England and other constrained regions of the country.

Affected industries will want to actively monitor the FERC rulemaking and associated NAESB processes, evaluate compliance with current pipeline Internet posting requirements, and evaluate pipeline capacity bidding and scheduling practices in light of the Commission’s orders and the proposed rule.