© 2012 day pitney llp ferc gas/electric coordination proceeding presented to nepool reliability...

© 2012 Day Pitney LLP

FERC Gas/ElectricCoordination Proceeding

presented to

NEPOOL Reliability CommitteeMarch 13, 2012

Joseph H. Fagan (202) 218-3901

[email protected] Eric K. Runge617-345-4735

[email protected]

mailto:[email protected]


| Presentation - NEPOOL Reliability Committee

FERC Proceeding: What Is It?Coordination Between Natural Gas and Electric

Markets (Docket No. AD12-12) NARUC – 2/3 – Commissioner Moeller requested comments on a

set of specific questions concerning gas-electric interdependence

FERC – 2/15 – To facilitate public input/access to issues raised by Commissioner Moeller, formal notice issued assigning docket and soliciting comments

FERC – 2/16 – In press release, Commissioner LaFleur identified five areas of gas/electric interdependence on which she urged comments

Note that this “Solicitation of Comments” docket is not a rulemaking (FERC is not required to act – but likely will)

Comment due date – On or before March 30, 2012, but unlikely FERC will reject either late-filed comments, or reply comments


Why The Solicitation of Comments?

Commissioner Moeller Solicitation of Comments - 2/3 – Due to recent events, we “must ensure that outages and reliability problems are not the result of the lack of coordination between the electricity and gas industries”

Natural gas is becoming fuel of choice for electric generation, and trend is expected to continue due to: Retirements of coal plants

Need for renewables to have natural gas as a baseload

Gas prices are low, and are expected to stay that way

While comprehensive solutions may be years in the making, not too early to start


Why Would New England Be Interested?

Region is increasingly dependent on natural gas-fired generation

During peak winter conditions, this dependency becomes more obvious, as seen in the 2004 “cold-snap” event

ISO-commissioned study has revealed the need for additional gas supply/transportation capability in the region

New England strategic planning initiative considering implications of increased natural gas-fired generation


Solicitation of Comments: Identified Questions

Commissioner Moeller raised the following questions: What role should FERC have in overseeing better

coordination?

What duties, if any, should be delegated to NERC, NAESB, or other entities?

To what extent should FERC defer to various regions of the country in addressing these challenges?

Should FERC view organized electricity markets differently from bilateral electricity markets? If regional deference is given, what role should FERC play to assure that regional agreements are adhered to?


Solicitation of Comments: Identified Questions Does FERC need to address the potential for changes in gas flows

caused by the increased use of gas for power generation?

How should FERC help to harmonize the electric/natural gas markets given difference in electric and gas trading day?

What will be the impact of the expected retirements of coal and oil-fired generation on the need for gas and electricity coordination?

To what extent should FERC consider modifying its existing Standards of Conduct with regulated utilities—either on an emergency basis or in a more fundamental manner—to assure greater coordination of these industries?

Will progress be faster if policies are addressed in several “baskets”, such as communication, operation, contracting, etc.? If so, what are the appropriate “baskets”?


Solicitation of Comments: Potential Issues

Among the potential issues that could be addressed by the numerous comments that are expected to be filed:

FERC authority – those seeking greater coordination between the industries may argue for the exercise of FERC’s statutory authority over both to effect change – similar to what was done in Order Nos. 636 and 888.



Deference to different regions – while the rules governing the natural gas industry are relatively uniform across the country, they are not in the electric industry – given the variety of organized wholesale markets and the existence of bilateral markets that are not located in an ISO/RTO region

Parties will likely urge accommodation of these regional differences, with the understanding that any regional agreements addressing gas/electric coordination issues will be filed and enforceable at FERC

Regional solutions run the risk of being slower to implement than nationwide solutions, so some urge bifurcated approaches (some national in scope, and some regional) depending on the issue



Changes in flows on interstate pipelines – This trend has already begun. FERC will certainly address in individual pipeline rate proceedings, but to the extent that stranded pipeline capacity is identified by pipelines in any comments as a systemic problem requiring a systemic solution, the resolution could be broadly applied

Do flow changes create flow restrictions that may impact reliability?

Unclear if this trend is attributable to greater use of gas-fired generation or simply the dynamic impact of shale plays on traditional long-haul pipelines



Harmonization of markets – Gas and electric trading days are not uniform. It would appear any attempt at harmonizing the two markets would invariably require tariff filings on behalf of interstate pipelines, utilities and/or ISOs.

Generators may urge greater opportunities to make intraday nominations on a pipeline.

NAESB can also play a role, but how fast can they act, and can such a process yield a consensus?



Impact of greater use of gas-fired generation in light of coal-fired/oil-fired plant retirements – will new pockets of constraints of pipelines be created, absent new construction/development?

If greater demand for transportation capacity, will pipelines be incentivized to construct or propose new services?

Will generators be incentivized to contract for firm service, or service that is “close” to firm, but more reliable than interruptible service?



Need for more natural gas infrastructure

What are the prospects for additional gas infrastructure (pipeline as well as storage) in the region? Are the proper incentives in place for both natural gas companies to build, and for generators to contract?

Does increased infrastructure/utilization create additional issues that may impact reliability – such as pressure fluctuations or gas quality differences?

How can FERC fast-track the certificate process while still complying with its obligations under the Natural Gas Act?


Next Steps

Given the deadline for comments, the different perspectives of NEPOOL Participants, the NEPOOL process and the nature of this proceeding, NEPOOL counsel and officers have been leaning against filing any comments on March 30, but seek concurrence of the members.

NEPOOL counsel propose to summarize for members some of the key comments filed on March 30 and then discuss whether it is desirable for NEPOOL to file reply comments.

There also will likely be additional opportunities for comments: depending on scope and substance of comments in this proceeding, FERC may issue a notice of inquiry (NOI), notice of proposed rulemakings (NOPR) and/or convene technical conference(s) to address pertinent issues.

© 2012 Day Pitney LLP

Questions?

Joseph H. Fagan (202) 218-3901

[email protected] Eric K. Runge617-345-4735

[email protected]



© 2012 day pitney llp ferc gas/electric coordination proceeding presented to nepool reliability...

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