Natural Gas & Electric Industry Coordination Efforts Advance Through NAESB Gas-Electric Harmonization Forum After Recent FERC Orders

The natural gas and electric industries have been a buzz since the Federal Energy Regulatory Commission (“FERC”) issued its March 20, 2014 Orders focused on improving the coordination and scheduling of natural gas pipeline capacity with electricity markets. The electric industry’s increasing reliance on natural gas as a fuel source earned the coordination of the two industries a spot at the top of a list of initiatives at FERC. Last November, FERC issued a final rule via Order No. 787, which permits interstate natural gas pipelines and electric transmission operators to share non-public operational information “for the purpose of promoting reliable service or operational planning on either the public utility’s or pipeline’s system.” The three interrelated March 20 Orders continue FERC’s efforts to build a bridge between the industries, and set an ambitious timeline for the industries to develop a consensus on standards for coordinating the scheduling processes of the natural gas and electricity markets in conjunction with the North American Energy Standards Board (“NAESB”). Through the NAESB Gas-Electric Harmonization Forum (“GEH Forum”), industry stakeholders, regulators, consumer advocacy groups, and others have been able to work towards developing a response to the proposed scheduling changes set forth in FERC’s March 20th Notice of Proposed Rule Making re: Coordination of the Scheduling Processes of Interstate Natural Gas Pipelines and Public Utilities (“NOPR”). The GEH Forum participants have generated four alternative consensus proposals and will vote during the Forum meeting on June 2-3, 2014 to determine which proposal to submit to the NAESB Board of Directors for consideration. According to the GEH Forum’s May 28, 2014 Revised Timeline, the NAESB Board of Directors is scheduled to meet on June 4, 2014 to review and vote on the alternative consensus proposal that is recommended by the GEH Forum participants. We highlight the key components of the NOPR and the GEH Forum’s progress, as well as the other March 20 Orders below.

The FERC NOPR

FERC explained that it was prompted to issue the NOPR and two other orders targeted towards enhancing coordination of the scheduling of natural gas and electricity markets, in part, in response to several concerns raised by the electric industry. Specifically, FERC noted how the nationwide standardized natural gas timelines for nomination and the acquisition of natural gas transportation are divergent from the regional scheduling practices that have developed in the electricity markets where Independent System Operators (“ISOs”) and Regional Transmission Operators (“RTOs”) each have established their own timelines for submission of bids and posting of awards:

Generators and transmission operators raised concerns that managing fuel procurement risk can be a challenge because of the different operating days used by the natural gas and electric industries and because the timeframe for nominating natural gas pipeline transportation service is not synchronized with the timeframe during which generators receive confirmation of their bids in the day-ahead electric markets. These differing timelines can cause significant price and/or supply risk for gas-fired generators because, to obtain the best gas price, the generators would need to nominate pipeline transportation service before they know if their electric bid has been confirmed. Generators, including generators in non-RTO markets, raised concerns about the flexibility of the gas scheduling system to accommodate their need to revise nominations in light of weather events or other operational needs. Several conference participants stressed that, due to the difficult policy questions involved, they would need Commission policy guidance before they would be able move forward on coordination of their existing scheduling practices.

Accordingly, the Commission issued the NOPR to gather public comments on its proposals to revise the natural gas operating day and scheduling practices used by interstate pipelines to schedule natural gas transportation service. FERC identified three main areas suitable for revision and proposed the following:

1. Start of Gas Operating Day: “Start the natural gas operating day (Gas Day) earlier in order to ensure that gas-fired generators are not running short on gas supplies during the morning electric ramp periods. The Commission is proposing to move the start of the Gas Day from 9:00 a.m. Central Clock Time (CCT) to 4:00 a.m. CCT.”
2. Start of Timely Nomination Cycle: “Start the first day-ahead gas nomination opportunity (Timely Nomination Cycle) for pipeline scheduling later than the current 11:30 a.m. CCT. Due to the fact that the Timely Nomination Cycle is the most liquid of the gas nomination cycles, 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. The Commission is proposing to move the Timely Nomination Cycle to 1:00 p.m. CCT.”
3. Addition of Intraday Nominations: “Modify the current intraday nomination timeline to provide four intraday nomination cycles, instead of the existing two, to provide greater flexibility to all pipeline shippers. The Commission is proposing to revise the existing standard intraday nomination cycles, including adding an early morning nomination cycle with a mid-day effective flow time and a new late-afternoon nomination cycle during which firm nominations would have precedence over or be permitted to bump already scheduled interruptible service. However, bumping would not be permitted during the proposed final intraday nomination cycle. In summary, the Commission is proposing to provide four standard intraday nomination cycles to occur at 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).”

FERC “recognize[d] that the natural gas and electricity industries are best positioned to work out the details of how changes in scheduling practices can most efficiently be made and implemented, consistent with the policies discussed here.” The NOPR provided 180 days for the natural gas and electric industries to reach consensus on standards, including any modifications to the Commission’s proposed revisions through the NAESB. Public comments on the Commission’s proposals, as well as comments on any consensus standards, are due within 240 days – by November 28, 2014.  A link to e-file comments can be found here.

The NAESB Gas-Electric Harmonization Forum

The NAESB GEH Forum began holding meetings in April 2014 in order to provide interested participants an opportunity to help develop consensus and shape the NAESB response to the NOPR. Thus far, the GEH Forum has held three meetings, with the fourth scheduled for June 2-3, 2014 in Houston, TX. The first meeting was held on April 22-23, during which presentations and alternatives to FERC’s proposal were discussed. The second meeting was May 5-6, where participants continued discussing alternatives and potential modifications to those alternatives. The third meeting on May 22-23 culminated in the decision that four alternative proposals would be put up for final binding votes at the June 2-3 meeting. A copy of the four alternative proposals that will be voted on can be found here.

During the June 2-3 meeting, the alternative proposals will be narrowed down via separate rounds of voting from four proposals to three, then from three to two, and then a vote will be taken to select one of the two remaining proposals. A final vote will be taken to determine the level of consensus on the remaining proposal. The selected proposal will be presented to the NAESB Board of Directors for consideration and vote on June 4. Details regarding the June 2-3 meeting and links to meeting materials, presentations, and more can be found here.

The GEH Forum’s May 28, 2014 Revised Timeline sets forth the timeline for then developing the NAESB Board recommendations, obtaining formal industry comments, voting and ratification of consensus standards, and submitting the consensus standards to FERC by September 29. The Timeline notes that “[i]f consensus on an alternative proposal cannot be reached or is not supported by the Board of Directors by June 9, 2014 a status report will be filed with the Commission and no other GEH Forum meetings are needed.”

The Companion Orders

Along with the NOPR, FERC issued two interrelated Orders:

• Order Initiating Investigation into ISO and RTO Scheduling Practices and Establishing Paper Hearing Procedures (Docket No. EL14-22, et al.): In this separate Order, FERC initiated investigations under Section 206 of the Federal Power Act into the day-ahead scheduling practices of the RTOs and ISOs to determine if they are just and reasonable and to ensure that their scheduling practices correlate with any revisions to the natural gas scheduling practices that may be adopted by in a Final Rule stemming from the NOPR. All filings must be submitted to FERC within 90 days of publication of the Final Rule.
• Order to Show Cause re: Posting of Offers to Purchase Capacity (Docket No. RP14-442): In a third Order, FERC initiated a Natural Gas Act Section 5 show cause proceeding requiring all interstate natural gas pipelines to revise their tariffs to provide for the posting of offers to purchase released pipeline capacity in compliance with 18 CFR §284.8(d) of the Commission’s regulations, or to otherwise demonstrate full compliance with that regulation. FERC also directed NAESB to develop business practice standards specifying the information required for requests to acquire capacity, the methods by which such information is to be exchanged, and the location of the information on the pipeline’s website.  Pipelines must explain in their filings how they will comply with the regulations until the NAESB standards are effective.

We will keep you posted on the development of NAESB’s response and FERC’s Final Rule in Docket No. EL14-22.