FERC moves to reform a gas-hungry grid

Source: Hannah Northey, E&E reporter • Posted: Friday, March 21, 2014

The Federal Energy Regulatory Commission today unveiled a series of proposals to better align the country’s increasingly gas-dependent electric grid with an expanding pipeline complex, a move aimed at preventing gas outages and rolling blackouts that have hit the Southwest in past years.
FERC’s proposed rulemaking detailed changes to the natural gas industry’s trading day and nomination schedule, which the agency said would make the system more flexible and ensure gas is available for all parties at critical times.FERC acting Chairwoman Cheryl LaFleur said the proposal would address two “national cut-across issues of communication and scheduling” that arose during ongoing discussions about how to better synchronize the grid and pipelines.The difference in the way power and gas markets address capital is ongoing on a regional basis in areas like New England, she said, and will likely be addressed at a technical conference April 1.FERC Commissioner Philip Moeller said ensuring the country’s pipelines and power lines work in tandem will be the agency’s “defining issue over the next five years” as coal plants across the United States close under new environmental rules.

The commissioners did not unanimously agree, however, about the one portion of the proposals that would make the natural gas operating day start earlier and modify the nomination process to provide shippers with more flexibility. The rule gives the gas and electric industries 180 days to reach consensus on any revisions to the proposal.

FERC Commissioner Tony Clark dissented and said he was more inclined to give industry an additional three to four months to work on the issue.

But LaFleur told reporters after the meeting that she, Moeller and FERC Commissioner John Norris decided that “now was the time to act” — after reviewing the issue for two years — based on ongoing industry discussions and their own consensus.

“No disrespect with what’s going on, but that’s the decision we made,” she said. “We thought we waited long enough and decided to put a proposal out there.”

The country’s growing need for gas was highlighted by a report FERC staff released today that found demand for natural gas overall increased 2.3 percent in 2013 to 70 billion cubic feet per day, the highest on record.

FERC staff found that demand for gas in the industrial sector grew 1.8 percent — supported by mining, manufacturing and petrochemicals — whereas gas demand among power generators declined by 10 percent because gas prices rose, creating competition with cheaper coal. Coal use for power generation rose almost 5 percent over 2012 levels, according to the report.

Gas production also hit records. Total gas supplies — with the Marcellus and Eagle Ford shale plays as the big hitters — including production, imports via pipeline and LNG imports averaged 68 billion cubic feet per day last year, up 1 percent from the prior year, FERC staff said.

FERC is also looking into unprecedented price spikes in the Northeast triggered by subfreezing temperatures earlier this year. The agency today said it has so far found no manipulation but is still reviewing what happened.

Eric Primosch, a staff member with FERC’s Office of Enforcement, said the agency had never seen $120 per million British thermal units at key trading posts and said many of the problems were tied to operational flow orders, maintenance and the weather. Primosch noted that the last two winters were relatively warm, whereas this winter was the 34th coldest on record.

Despite those price spikes, FERC staff said long-term gas prices actually fell last year, encouraging long-term demand and growth.

Commissioners said the country’s “rush to gas” also raises grid reliability concerns, as aging nuclear and coal plants that cannot compete are forced to close.

Norris pointed to the ongoing retirement of base-load nuclear power plants — units that are struggling to compete with cheap gas. Norris said FERC could look at the issue as an energy policy item, adding that nuclear is critical to lowering emissions in coming decades.

“If we don’t do something to address this nuclear situation … we’re letting some pretty big bridges be torn down,” he said. “I’m all ears about what we can do to enable these nuclear facilities to stay in production … in particular to addressing long-term carbon rules.”