Electricity, FERC, Gas-Electric Interdependency, Natural Gas

NAESB Response to FERC NOPR re: Coordinating Schedules of Natural Gas and Electricity Markets Subject to Public Comment until November 28th

nsilcock051100038Coordinating the scheduling of the natural gas and electricity markets has been a priority for the Federal Energy Regulatory Commission (“FERC”), given the increasing dependence of the electric industry on natural gas as a fuel source. In March, FERC issued a Notice of Proposed Rule Making re: Coordination of the Scheduling Processes of Interstate Natural Gas Pipelines and Public Utilities (Docket RM14-2) (“NOPR”), along with two additional orders which focused on addressing the divergence between the nationwide standardized natural gas timelines and the regional scheduling practices that have developed in the electricity markets. Through its Gas Electric Harmonization Forum, the North American Energy Standards Board (“NAESB”) spearheaded the effort to develop an industry-wide consensus response to FERC’s proposal within the 180-day timeframe provided by the NOPR. As called for by the NOPR, NAESB submitted a report of the standards developed in response to FERC’s proposals on September 29, 2014 (“NAESB Report”). On October 15, 2014, FERC gave notice that it will be receiving comments on the NAESB Report, as well as the FERC proposal set forth in the NOPR and an alternate minority proposal submitted by the Desert Southwest Pipeline Stakeholders (“DSPS Alternate Proposal“). Comments on each of the proposals are due by November 28th. We highlight key elements of each of the proposals below.

FERC Proposal 

FERC initiated this rule making process with proposed revisions to the following three aspects of the national standardized natural gas timeline:

  1. Start of Gas Operating Day: FERC proposed to make the start of the Gas Day earlier, moving it from 9:00 a.m. Central Clock Time (“CCT”) to 4:00 a.m. CCT “in order to ensure that gas-fired generators are not running short on gas supplies during the morning electric ramp periods.”
  2. Start of Timely Nomination Cycle: FERC proposed to make the Timely Nomination Cycle, which is the first day-ahead gas nomination opportunity for pipeline scheduling, later in the day. FERC proposed moving it from the current 11:30 a.m. CCT to 1:00 p.m. because “the Timely Nomination Cycle is the most liquid of the gas nomination cycles,” and “this change will 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.”
  3. Addition of Intraday Nominations: FERC proposed adding two additional intraday nomination cycles to the current timeline, to provide a total of four intraday nomination cycles that would give pipeline shippers more flexibility. FERC’s proposal includes the addition of an early morning nomination cycle that would have a mid-day effective flow time and a late-afternoon nomination cycle that would allow firm nominations to bump scheduled interruptible service. FERC’s proposal includes the following intraday nomination cycles: “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).”

NAESB Proposal

At the outset of the NAESB GEH Forum proceedings, the NAESB Board of Directors had determined that a consensus of the GEH Forum would require a super majority affirmative balanced vote of 67% of each of the Wholesale Electric Quadrant (“WEQ”) and Wholesale Gas Quadrant (“WGQ”) participants and at least 40% affirmative balanced vote of each of the segments. The GEH Forum ultimately failed to achieve a consensus vote on any of the proposals submitted during the process. The GEH Forum participants considered thirteen proposals and narrowed the alternatives down to four proposals for a final vote in the last meeting of the forum. The four final proposals set out the same nomination timelines, providing for three intraday nomination cycles but differing start times for the gas day – 4:00 a.m., 6:00 a.m., 7:00 a.m., and 9:00 a.m. Although no consensus was reached by the forum, the NAESB Board of Directors voted to modify the NAESB standards based on the Timely Nomination Cycle, Evening Nomination Cycle, and three intraday nomination cycles set forth in the final proposal considered/voted on by the GEH Forum, given that “there appeared to be broad support from interested parties in both the gas and electric industries for changes to the intraday scheduling cycles and the day-ahead nomination cycles.” The NAESB Board instructed that the new and modified standards should remove all reference to the start of the Gas Day, deferring to FERC to “establish the gas day start best suited to achieve the objectives defined in the NOPR.” The results of the GEH Forum’s efforts were discussed in detail in our previous posts here and here.

The NAESB WGQ Business Practice Standards Subcommittee (“WGQ BPS”) and the WGQ Joint Information Requirements/Technical (“IR/Technical”) Subcommittees subsequently worked to develop recommended modifications to the NAESB WGQ Business Practice Standards and the Business Documentation and Implementation Guides in accordance with the Board’s instructions. The industry had a thirty-day period to submit comments on these recommendations beginning on July 18, 2014. NAESB reported receiving fourteen sets of comments, including the DSPS Alternate Proposal on which FERC is seeking comments. NAESB reported further modifying the standards based on the comments submitted by Williams Gas Pipeline and Macquarie Energy LLC. Ultimately, NAESB membership ratified the final proposed modifications on September 22, 2014, which include modifications to twenty-three NAESB WGQ Business Practice Standards.

The NAESB Report sets forth the modifications made to the nomination cycle reflected in WGQ Standard No. 1.3.2 as follows:

– on the day prior to gas flow, the Timely Nomination Cycle now begins at 1:00 P.M. Central Clock Time and concludes at 5:00 P.M. Central Clock Time with scheduled quantities resulting from this cycle becoming effective at the start of the next gas day;

– the start of the Evening Nomination Cycle remains 6:00 P.M. Central Clock Time but now concludes at 9:00 P.M. Central Clock Time with scheduled quantities resulting from this cycle becoming effective at the start of the next gas day;

– the start of the Intraday 1 Nomination Cycle remains 10:00 A.M. Central Clock Time but now concludes at 1:00 P.M. Central Clock Time with scheduled quantities resulting from this cycle becoming effective at 2:00 P.M. Central on the current gas day;

– the start of the Intraday 2 Nomination Cycle now begins at 2:30 P.M. Central Clock Time and concludes at 5:30 P.M. Central Clock Time with scheduled quantities resulting from this cycle becoming effective at 6:00 P.M. Central Clock Time on the current gas day;

– the new Intraday 3 Nomination Cycle will begin at 7:00 P.M. Central Clock time and conclude at 10:00 P.M. Central Clock Time with scheduled quantities becoming effective at 10:00 P.M. Central Clock Time on the current gas day.

– Under the revisions to the nomination cycle, bumping will now be allowed during the Intraday 2 Nomination Cycle in addition to the Evening Nomination Cycle and the Intraday 1 Nomination Cycle.

– The nomination cycle timeline is not dependent upon a certain start time to the gas day.

NAESB reported additional modifications to WGQ Standard Nos. 1.3.41, 5.3.2, and 5.3.44 and technical documentation to reflect changes in the nomination cycle. Non-substantive changes to the language of the NAESB WGQ Business Practice Standards and technical documentation were also made. NAESB also reported receiving a NAESB Standards Request in August which seeks to revise WGQ Standard No. 1.3.39 “to allow Transportation Service Providers to bump during the Intraday 3 Nomination Cycle, provided the Transportation Service Provider offers a subsequent no-bump nomination cycle.” This week, NAESB will consider whether to develop recommendations proposing changes to the standards or to recommend no action on the request.

Desert Southwest Pipeline Stakeholders Alternate Proposal

The Desert Southwest Pipeline Stakeholders (“DSPS”), which includes Arizona Public Service Company, Salt River Project Agricultural Improvement and Power District, UNS Gas, Inc. and Tucson Electric Power Company, Public Service Company of New Mexico, El Paso Electric Company and the Arizona Corporation Commission, submitted formal comments with an alternate proposal in response to the proposed modifications presented by NAESB for industry comment on July 18, 2014. In its comments, the DSPS argued that the NAESB Board’s decision to develop modified standards in the absence of a true consensus proposal was “neither consistent with ground rules established for the public forum nor consistent with the Commission’s direction to NAESB to reach a ‘consensus’ of the gas and electric industries on standards.” Instead, the DSPS argued, the Board should have allowed all complete proposal packages to have been presented to FERC for consideration since no complete proposal package had garnered the requisite consensus vote. The DSPS insisted that its alternate proposal, which takes into account several conditions unique to the industry in the Desert Southwest, be forwarded to FERC for consideration. The major issue for the DSPS was identified as “the need of firm shippers in the Desert Southwest to have a NAESB nomination cycle that would provide firm access (i.e., with bumping rights) to their transportation capacity during their peak demand periods at 7:00 PM to 9:00 PM Central in order to address operational contingencies (including unexpected changes in solar and wind generation).” You can read the DSPS comments and DSPS Alternate Proposal here.

FERC Comment Period

The FERC comment period on the NOPR, NAESB Report, and DSPS Alternate Proposal is open until November 28, 2014. Following conclusion of the rule making process, NAESB intends to revise the language of the NAESB WGQ Business Practice Standards as necessary if FERC identifies a specific Gas Day start time.

Brian Heslin

About Brian Heslin

Brian Heslin represents energy companies in regulatory proceedings at the state and federal level. In addition, he provides advice on busines and strategic planning, upstream natural gas supply and capacity negotiation, compliance and other related services.

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The landscape of the energy industry is rapidly changing, with a focus on the development of clean, domestic energy sources and a secure, reliable energy infrastructure driving significant changes in the interdependency of energy industry segments and an increase in government regulation. Continued growth in the domestic production of oil and natural gas has positioned the U.S. to be an energy exporter in the global market and will have a marked impact on the course of the industry’s development.

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