Comments filed with the Federal Energy Regulatory Commission (FERC) in late November show that the natural gas and electric power industries continue to disagree fundamentally on FERC’s proposal to promote greater coordination between the two industries by redefining the “Gas Day.”
The Gas Day, which currently begins at 9:00 a.m. Central Clock Time (CCT) each day, is a 24-hour period during which shippers nominate and schedule natural gas transportation services furnished by natural gas pipelines. The Gas Day is enshrined in the tariffs of all interstate natural gas pipelines, pursuant to standards adopted by the North American Energy Standards Board (NAESB) and referenced by FERC regulations. It is also referenced in many commercial agreements involving the purchase and sale of natural gas in North America. From the time NAESB first addressed the subject, there has been a single Gas Day applicable to all interstate natural gas pipelines, regardless of location.
In March 2014, FERC issued in Docket No. RM14-2-000 a notice of proposed rulemaking (NOPR), in which it announced its proposal to change the start of the Gas Day from 9:00 a.m. to 4:00 a.m. CCT. The NOPR is part of FERC’s ongoing effort to promote electric supply reliability through improved coordination between the natural gas and electric power industries.
The proposed change in the Gas Day is FERC’s response to electric industry requests to make the Gas Day coincide with the electric day, which generally begins at 12:00 midnight local time. FERC has declined to make this change, noting the benefit of a standardized nationwide Gas Day. Instead, FERC proposed changes in the Gas Day that it reasoned would promote electric generation efficiency by allowing generators to schedule their gas transportation and supply on a day-ahead basis. If the Gas Day were to be changed so that it began at 4:00 a.m. CCT, the periods of peak electric demand for electric days in all time zones would generally fall within one Gas Day. In addition, the Gas Day would start before the morning ramp-up in electric demand. With the current 9:00 a.m. Gas Day, the morning ramp-up in electric demand occurs near the end of each Gas Day, a time at which there is little flexibility for generators to arrange changes in gas supply and transportation.
FERC also proposed changes to the timely gas nominations cycle (from 11:30 a.m. to 1:00 p.m. CCT). This change is intended to establish a later effective time for day-ahead transportation nominations, so that the timely cycle would remain open until after ISOs and RTOs accept generators’ bids for the next day. This, FERC suggests, would allow generators to take advantage of the greater liquidity that exists as to timely day-ahead nominations. FERC also proposed to increase flexibility by adding two additional intraday nomination cycles (for a total of four) and to require that pipelines allow multiple parties to contract for service under a single service agreement. Multi-party agreements are attractive to organizations that own multiple generation entities and use a service company to arrange and manage enterprise-wide gas supply. Several pipelines already offer such arrangements.
FERC took the novel approach of establishing an eight-month comment period under the NOPR. The longer-than-usual comment period was intended to afford industry participants time to work with NAESB to develop and agree upon possible modifications to FERC’s proposal. NAESB responded by forming the Gas and Electric Harmonization (GEH) Forum to consider changes to the Gas Day and nomination cycles. On September 29, 2014, NAESB reported that, while through its GEH Forum it was not able to achieve consensus as to the start time for the Gas Day, it was able to achieve consensus on a revised nominations schedule that would include three intraday cycles and adopt the 1:00 p.m. timely nomination cycle.
Over 75 individuals, groups and organizations filed comments on FERC’s proposed Gas Day and related changes. Commentors aligned with the natural gas industry strongly oppose the change in the start of the Gas Day, citing safety and staffing concerns. They observed that advancing the start of the Gas Day to 4:00 a.m. CCT would compel industry participants to undertake significant activities in the middle of the night, and that computer system modifications required to implement the modified Gas Day would be costly. The Interstate Natural Gas Association of America, representing North America’s interstate natural gas pipelines, noted that more than a year would be required to implement the proposed change in the Gas Day start time. The American Public Gas Association, representing municipal and other publicly-owned gas utilities, claimed that the Gas Day change alone would cost the natural gas industry “hundreds of millions of dollars.” The natural gas industry comments also question whether the change could achieve its intended result of promoting reliability, generally noting that the change in Gas Day start time is not a substitute for electric generators contracting for firm services, which would allow development of needed pipeline infrastructure.
Electric industry comments, filed by independent electric transmission system operators (ISOs), regional transmission organizations (RTOs) and electric power generators, strongly support the proposed 4:00 a.m. Gas Day start time. Electric sector interests generally concur that the change would achieve the benefits that FERC describes in the NOPR.
Other aspects of the NOPR, including the proposal to increase the number of intraday nomination cycles and multi-party contracting for services, received positive comments from both natural gas and electric power industry commentors. A number of commentors support NAESB’s proposed three intraday nominations cycles; however, a small number of commenters claim that the NOPR and NAESB proposals don’t go far enough. For example, the Tennessee Valley Authority (TVA), a major electric power generator which also owns substantial transmission, stated that, rather than taking what it describes as “small steps” towards aligning gas transportation with electric generators’ needs, FERC should consider “further steps to eliminate bumping rights, increase nomination opportunities, and close loopholes in using secondary out-of-path transportation.” The Council of ISOs and RTOs, representing the managers of the organized electric markets, as well as other electric power sector commentors, urged the Commission to promote hourly nominations, noting that some pipelines already allow such flexibility. In addition to TVA, several other commenters questioned retention of the “no-bump” rule. FERC’s “no-bump” rule prohibits firm transportation from displacing (“bumping”) interruptible transportation services during a Gas Day’s last intraday nomination cycle.
A small number of commenters, including the Desert Southwest Pipeline Stakeholders, suggested that FERC should allow primary firm nominations to bump secondary firm nominations. Current FERC policy requires that, once scheduled, secondary firm transportation services must have the same priority as primary firm transportation services. The Desert Southwest Pipeline Stakeholders have claimed that earlier scheduled secondary transportation services interfere with their ability to ramp-up gas-fired generation throughout the course of a Gas Day as required to integrate intermittent renewable generation (wind and solar) onto the power grid.
Comments filed by representatives of the natural gas and electric power sectors indicate that there is no compromise on the Gas Day start time that would be acceptable to both the natural gas and electric industries. Given the divergence in the comments on the Gas Day start time issue, FERC now has a difficult decision to make. In an apparent attempt to obtain more information to help with its decision, FERC sent data requests to six ISOs and RTOs on December 12, 2014 requesting information regarding circumstances in which generators were unable to operate due to a lack of gas supply near the end of the current 9:00 a.m. Gas Day.
Once FERC reaches a decision and issues a rulemaking order, the focus may shift to the electric ISOs and RTOs. Concurrent with the NOPR, FERC issued an “Order Initiating Investigation into ISO and RTO Scheduling Practices,” under Section 206 of the Federal Power Act, directing six major ISOs and RTOs to consider changes to their tariffs that may be required to implement any changes made in the Gas Day rulemaking. Proceedings under that order are currently dormant, pending FERC’s decision in the Gas Day NOPR. If, however, FERC decides in favor of the electric industry on the Gas Day start time, it will become incumbent on the ISOs and RTOs to make changes to their tariffs and practices that will ensure that the benefits of the Commission’s controversial action are realized.
There is no set time for FERC action on the NOPR; however, it is likely that the Commission will issue a rulemaking order sometime in 2015. A rulemaking order, however, will not mark the end of FERC proceedings on the subject. Any FERC decision is likely to be opposed by segments of the natural gas and/or electric power industries on rehearing and, possibly, judicial review. NAESB will need to finalize standards incorporating the changes adopted by any FERC rulemaking order and interstate pipelines will need to modify their tariffs to incorporate the new NAESB standards. ISOs and RTOs may also need to modify their tariffs. If FERC changes the Gas Day start time, natural gas pipelines will likely need a year or more to make changes to their computer systems. On the other hand, if FERC elects to retain the 9:00 a.m. Gas Day, the remainder of the nominations and scheduling changes proposed in the NOPR could probably be implemented in a shorter timeframe.
In any event, FERC has embarked on a course that will likely result in uncertainty as to the Gas Day and natural gas scheduling procedures for years to come. In the end, the NOPR may ultimately reveal that the benefits of improved gas-electric coordination and communications may be limited in practice. This could clear the way for the natural gas and electric power industries to focus on the need for development of new pipeline infrastructure that can support additional firm natural gas transportation services, and even ISO/RTO rules that would allow generators to recover the costs of securing reliable firm transportation services.