FERC Rule on Coordination of Natural Gas and Electric Scheduling Finalized as Industry Interdependency Grows

The electric industry is becoming increasingly reliant upon natural gas as a fuel source in the midst of our nation’s abundant natural gas resources and aggressive regulatory efforts to reduce the environmental impact of power plants.  The U.S. Energy Information Administration recently reported that the use of natural gas as a fuel for electric power generation, referred to as “power burn,” hit record levels this winter.  Through a multi-year effort that engaged industry stakeholders, the Federal Energy Regulatory Commission (“FERC”) set out to facilitate the coordination of the scheduling practices of the natural gas and electric industries to accommodate the industries’ growing interdependency.  On April 24, 2015, FERC’s final rule on Coordination of the Scheduling Processes of Interstate Natural Gas Pipelines and Public Utilities (“Final Rule”) was published in the Federal Register, triggering a July 8, 2015 effective date.  FERC issued its Order No. 809, adopting the Final Rule the week prior.  Our posts have tracked the detailed development of the Final Rule through the North American Energy Standards Board (“NAESB”) Gas-Electric Harmonization Forum (“GEH Forum”) process, which aimed to develop a consensus response to FERC’s original proposal.  We highlight the parameters of the Final Rule here, which largely incorporate by reference the revised standards adopted by NAESB coming out of the GEH Forum.

The Final Rule:  In finalizing the rule, FERC explicitly incorporated by reference the standards developed by NAESB through the GEH Forum process and decided to abandon its original proposal to make the start of the Gas Day earlier after considering comments and the information submitted by ISOs and RTOs in response to FERC’s December 2014 data requests.  The NAESB standards were silent on the time of the Gas Day start, leaving that determination to FERC.  FERC ultimately concluded that it “is not clear that requiring a change in the Gas Day start time would provide sufficient benefits to outweigh the operational and safety impacts and costs of making such a change.”  FERC noted that continuing regional efforts may be more effective in addressing any particular related concerns.  The key components of the Final Rule include:

• Gas Day Start: The start of the Gas Day will not be changed, despite FERC’s original proposal to make it earlier.  The Gas Day still will begin at 9 a.m. Central Clock Time (CCT). FERC instructed NAESB to change its standards to reflect the start of the Gas Day at 9:00 a.m. CCT and FERC will incorporate the revised NAESB standards in an instant Final Rule.
• Timely Nomination Cycle: The nationwide Timely Nomination Cycle nomination deadline for scheduling natural gas transportation will be changed from 11:30 a.m. CCT to 1:00 p.m. CCT; and notice to shippers of scheduled quantities will be provided at 5:00 p.m. CCT, instead of the current 4:30 p.m.
• Evening Nomination Cycle: The nationwide Evening Nomination Cycle nomination deadline will remain 6:00 p.m. CCT, but notification to shippers of scheduled quantities will be provided at 9:00 p.m. CCT instead of the current 10:00 p.m. CCT.
• Intraday Nomination Timeline: The intraday nomination timeline will be revised to add a third intraday nomination cycle and adjust the timeframes and bumping status of the cycles as reflected below:

• Multi-Party Contracts: The Final Rule allows for natural gas pipeline customers to enter into multi-party contracts for firm transportation in order to facilitate the efficient sharing of pipeline capacity without subjecting shippers to capacity release regulations.  The rule does not require all pipelines to make multi-party contracts immediately available via tariff revisions, but rather requires only those pipelines who receive requests from shippers to do so within 60 days of a request.

Compliance Timeline:  FERC wanted to provide pipelines enough time to implement the Final Rule’s changes.  Therefore, interstate natural gas pipelines will not be required to begin operating under the new standards until April 1, 2016, with tariff filings reflecting the changed standards due by February 1, 2016.  For the electric industry, however, FERC’s March 2014 Section 206 Order requires that within 90 days after publication of the Final Rule in the Federal Register, each ISO and RTO must propose tariff revisions “to adjust the time at which the results of its day-ahead energy market and reliability unit commitment process (or equivalent) are posted to a time that is sufficiently in advance of the Timely and Evening Nomination Cycles, respectively, to allow gas-fired generators to procure natural gas supply and pipeline transportation capacity to serve their obligations” or to show cause why its current scheduling practices do not require modification.