The State of Natural Gas and Electric Interdependency: FERC’s 2nd Quarterly Update on Natural Gas-Electric Coordination

            During the first two quarters of this year we have seen substantial activity at the national and regional levels focused on the interdependency of the natural gas and electric industries.  The increasing interdependence of these energy resources stems from the proliferation of electricity generators that are fueled by natural gas and has prompted the launch of industry and government initiatives seeking to fully understand the impact the industries have on one another, the risks presented by their interdependency, and potential strategies to ensure that there will be reliable sources of natural gas and electricity at the levels necessary to meet our nation’s demand in the years to come.  On June 20, 2013, the staff of the Federal Energy Regulatory Commission (the “Commission”) issued its second Quarterly Update on Gas-Electric Coordination Activities to the Commissioners (Item No. A-4, FERC Docket No. AD12-12), in accordance with the Commission’s November 15, 2012 Order which requires quarterly reports on industry activity related to the impact of increased gas-fired electricity generation for the next two years.  The second Quarterly Update addresses industry, regulatory and legislative initiatives during the period of March 2013 through June 2013, including the efforts of regional task forces and focus groups, the status of national and regional interdependency studies, and Congressional and federal agency activities, which we highlight below.

            The second Quarterly Update reveals several common concerns that were at the heart of these regional and national efforts, including: the adequacy of natural gas infrastructure and pipeline capacity for gas delivery and storage, coordinating the operation of the gas and electricity markets to allow for more accurate and flexible scheduling of required amounts of natural gas for electric generators, allocation and recovery of costs associated with ensuring reliable electricity and natural gas resources, and increasing the communication between the industries to facilitate more seamless coordination, while observing applicable legal boundaries on such communication.  While the federal government is invested in exploring natural gas and electric interdependency and in ensuring that the nation’s energy supply is secure and reliable, some participants in last quarter’s activities reportedly expressed that regional efforts may be the best solution for resolving interdependency issues because the challenges presented are unique to the various regions of the country.

Regional Task Forces & Focus Groups: The second Quarterly Update provides details regarding the coordination efforts of task forces and focus groups in each region, which are highlighted below:

• North East:  The New England States Committee on Electricity (NESCOE) Gas-Electric Focus Group has focused on evaluating the challenges that arose last winter and identifying solutions for the next winter season. Proposals included using oil-fired generation as a back-up if the natural gas supply were to be reduced and using liquefied natural gas (“LNG”) resources.  NESCOE subcommittees continued work related to developing a common information platform to facilitate selling, nominating and scheduling gas supply.
• Mid-Atlantic:  The NYISO Electric-Gas Coordination Working Group analyzed the status of gas-fired electric generation during a “cold snap” in January and identified key needs to better manage gas pipeline services and gas supply contracts.  The PJM Gas Electric Senior Task Force initiated its mission to focus on gas-electric issues that have not been tackled by other PJM market and financial groups with its first meeting on April 30th.
• Central:  The MISO Electric-Natural Gas Coordination Task Force has met monthly on interdependency issues.  Southwest Power Pool (“SPP”) established a Gas-Electric Coordination Task Force, which is developing plans for coordinating communication during gas supply events, and identifying single-point-of-failure issues in the region.  The Electric Reliability Council of Texas (“ERCOT”) has many ongoing initiatives, including working with the Texas Pipeline Association and the Texas Railroad Commission to incorporate the location of significant gas facilities into ERCOT’s electric network model to help evaluate the impact of electricity and gas outages on pipelines and electric generators.
• West:  The Power and Natural Gas Planning Task Force continues working on enhancing communication and coordination between the gas and electric industries through addressing policy, planning, and reliability concerns. An Emergency Planning Committee was formed pursuant to the Northwest Mutual Assistance Agreement to address winter preparedness issues.  The new Desert Southwest Task Force held its initial meeting on May 23rd and plans to meet monthly to address key issues, including increased access to intraday firm gas transportation rights, reconsidering the no bump rule, weekend and holiday scheduling, expansion of pipeline infrastructure, and the need to coordinate gas and electric days.  The California ISO continues to work on initiatives with other Independent System Operators (“ISOs”) and Regional Transmission Organizations (“RTOs”), gas pipelines, and the Western Electric Industry Leaders Group.
• Southeast:  SERC continues to meet with natural gas pipelines on a monthly basis.

Regional & National Interdependency Studies: Several studies on issues related to the interdependency of the natural gas and electric industries have been initiated and/or continued through last quarter.  The status of those studies was reflected in the second Quarterly Update:

• National:  The North American Electric Reliability Corporation (NERC) released Phase II of its “Special Reliability Assessment: Accommodating an Increasing Dependence on Natural Gas for Electric Power.” Phase II of the assessment is a “Vulnerability and Scenario Assessment for the North American Bulk Power System.” The NERC Phase II report can be found here, with recommendations that include: incorporating fuel availability into national and regional reliability assessments, increasing system operators’ awareness of fuel arrangements in their areas, enhancing the Generator Availability Data System to improve the identification of trends in electric generator outages caused by fuel supply issues, and using formal communication between industries to improve coordination.  The North American Energy Standards Board is investigating cyber security issues to identify and address any vulnerabilities that may result from integrating natural gas and electric systems.
• Northeast:  Black & Veatch released Phase II of its findings from a New England pipeline capacity study, which focused on historical natural gas demand, projected growth of natural gas for the next 15 years, and estimated costs for infrastructure development.
• Mid-Atlantic:  The planning of a multi-regional study of interstate, intrastate, and local gas infrastructure was initiated by the Eastern Interconnection Planning Collaborative (EIPC) during first quarter.  The study involves ISO-NE, NYISO, PJM, MISO, Ontario IESO, TVA and the AGA, and will evaluate the current state of electric and gas systems, the adequacy of regional gas systems for the upcoming 5-10 years, and areas of gas system vulnerability. An RFP is expected to be issued mid-July, with the study scheduled for completion by May 2015.  Levitan & Associates has almost finished a short-term outlook “static” study requested by the NYISO.
• Central: The MISO Electric-Natural Gas Coordination Task Force initiated studies related to coordinating gas and electric operations and scheduling, and the adequacy and reliability of gas and electric resources.  Phase III of the MISO gas-electric infrastructure interdependency analysis was initiated and will focus on the impact of natural gas delivery failures on electric reliability.
• West:  Responses to the RFP issued by the Western Gas-Electric Regional Assessment Task Force for a Natural Gas – Electric and System Flexibility Assessment are due during the first week of July.  The ColumbiaGrid Gas-Electric Interdependencies Study Team completed a study of electric transmission system reliability issues associated with a potential limitation on gas supply to electric generators.  The study confirmed early findings that the electric system would perform adequately in the event of a gas shortfall.

Congressional Activity:  Both chambers of the U.S. Congress probed gas-electric interdependency issues in May, 2013:

• On May 9th, the U.S. House of Representatives Committee on Energy & Commerce, Subcommittee on Energy and Power held a hearing on “American Energy Security and Innovation: Grid Reliability Challenges in a Shifting Energy Resource Landscape,” which focused on the shift in fuels used to generate electricity from coal to cleaner sources and the increasing dependence on natural gas.  Among the issues addressed by participants were the need for expansion of natural gas pipeline infrastructure, gas storage capacity, and strategies for easing the financial burden on electric generators that will result from ensuring the reliability of electricity.  Hearing information, transcripts, and testimony are available here.
• On May 14th, the U.S. Senate Energy and Natural Resources Committee held the full committee forum “Infrastructure, Transportation, Research, and Innovation,” which focused on issues related to the new demands for applications of natural gas, including the need for development of pipeline infrastructure and recovery of the costs attendant to securing reliable electricity. Hearing information and witness testimonies are available here.

Federal Agency Activity:  The second Quarterly Update highlighted recent efforts undertaken by the U.S. Department of Homeland Security, the Federal Emergency Management Agency (“FEMA”), and the Commission:

• In April, the Department of Homeland Security and FEMA ran a Natural Gas-Electric Emergency Exercise in which electric and gas utilities and the Western Electricity Coordinating Council participated. The exercise tested emergency protocols for handling a disruption of energy.
• During the quarter, the Commission held a Gas-Electric Scheduling Technical Conference on April 25th and a special meeting on Gas-Electric Coordination on May 18th.  The April Scheduling Technical Conference addressed coordination of natural gas and electricity markets to facilitate efficient and effective interdependent operation of both markets.  The issues addressed include: changing the timing of the gas day to incorporate electric peaks, moving the timely nomination cycle for natural gas, earlier posting of day-ahead commitments by the electric markets, standardized additional intra-day nomination opportunities for natural gas, and the functioning of the Commission’s natural gas capacity release program.  Additional information about the Technical Conference, including staff and participant presentations, are available here.
• The May special Commission meeting was attended by each electric RTO and ISO who discussed how lessons learned through the Winter and Spring seasons can help fine-tune their practices and facilitate harmonization of the natural gas and electric industries.  While the experiences in each region were unique, the reported common threads of discussion include the need to raise awareness and share information between industries, the need to address when communications are allowed between industries, and to consider changing rules of the markets to facilitate coordination.  Information regarding the special meeting, including materials provided by the participants, is available here.
• The Commission also received several filings by natural gas and electric companies related to coordination of the industries.  Four filings were received from gas companies seeking to expand pipeline capacity, including for pipelines servicing electric generation facilities in Mexico.  Three filings were received from gas companies seeking flexibility in scheduling to allow shippers additional nomination opportunities.  Three electric industry filings were received, including a complaint regarding the interpretation of ISO-NE’s tariff, which is ongoing; a request to modify New England’s market rules regarding the Day-Ahead Energy Market and the initial Reserve Adequacy Analysis process, which was approved; and a request for the recovery of fuel and regulatory costs, which was approved subject to a filing substantiating actual regulatory costs.

The next staff Quarterly Update will be presented to the Commission in October 2013.  Our previous post provides an overview of the Commission staff’s first Quarterly Update, which discussed activities from September 2012 through February 2013. We will keep you informed of additional developments in the Commission’s Natural Gas-Electric Coordination Docket.