Unanswered Questions About FERC's Proposed Rules For Increasing Coordination Of Natural Gas And Electric Grid Operations

On March 20, 2014, the Federal Energy Regulatory Commission ("FERC" or "Commission") issued proposed rules to change interstate natural gas pipelines' nomination and scheduling procedures to better synchronize them with the electric industry's scheduling practices.1The principal elements of the NOPR are proposals to:

Move the start of the Gas Day from 9:00 a.m. Central Clock Time ("CCT") to 4:00 a.m. CCT; Start the first day-ahead nomination cycle (known as the "Timely Nomination Cycle") for pipeline scheduling at 1:00 p.m. CCT, rather than the current 11:30 a.m. CCT start time. The Commission asserts that this will allow administrators of organized wholesale electric markets to finalize their daily scheduling before the time that gas-fired generators must submit nominations for gas transportation service to interstate pipelines; and Modify the current intraday nomination timeline to provide four intraday nomination cycles, instead of the existing two. Specifically, the Commission proposes to add an early morning nomination cycle with a mid-day effective flow time and a new late-afternoon nomination cycle (in which firm nominations would be permitted to displace or "bump" already scheduled interruptible service). The four standard intraday nomination cycles would be 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)."2 The NOPR provides for a period of 180 days from its publication in the Federal Register for the gas and electric industries to reach consensus, under the auspices of the North American Energy Standards Board ("NAESB"), on the details of potential alternatives to FERC's proposed scheduling reforms. NAESB must submit any alternative proposal that it develops by September 29, 2014. Comments on the NOPR (and on any proposal NAESB may submit) are due on November 28, 2014.

This paper briefly describes the historical and recent context for FERC's proposal, and identifies some important legal issues that the NOPR largely overlooks. Should it wish to make its proposed rules effective, FERC likely will have to address these questions, and how it does so could determine whether any disputed rules can survive judicial review. The views expressed in this paper are those of the authors only, and do not necessarily reflect the views of Wright & Talisman, P.C., or of any client of the firm.

Context of the NOPR

The nation's gas-fired electric generation fleet has expanded dramatically over the past 15-20 years, and the electricity industry's reliance on gas is expected to continue growing. In 2000, for example, the nation had approximately 243,000 megawatts of gas-fired generation capacity.3 That capacity essentially doubled over the next twelve years, totaling nearly 486,000 megawatts in 2012.4 Gas-fired capacity now represents about 41 percent of the nation's installed generation capacity. The U.S. Energy Information Administration ("EIA") projects that "[t]he combination of slow growth in electricity demand, competitively priced natural gas, programs encouraging renewable fuel use, and the implementation of environmental rules" will increase the reliance on gas from about 24 percent of total electricity consumption of approximately 4.1 trillion kilowatt-hours ("kwh") in 2010 to just over 35 percent of consumption of about 5.2 trillion kwh by 2040.5 If realized, this forecast would represent nearly 90 percent growth in the amount of electric energy generated by gas-fired power plants.

The electric industry's growing reliance on natural gas to fuel its generation fleet has captured the attention of regulators and policy makers for at least ten years. Though issues may have arisen even earlier, the two industries' interdependence certainly was highlighted for many when the combined demands for gas for heating and power generation during a severe spell of cold weather in New England in early 2004 nearly resulted in blackouts. Later that year, FERC's chairman called on NAESB to develop standards "to integrate the business practices of the gas and electric industries."6 In response to reports from NAESB in 2005 and 2006 regarding the deliberations of its Gas-Electric Interdependency Committee, FERC amended its regulations to incorporate limited changes in NAESB's business practices standards, primarily related to sharing certain operational information and types of communications between and among pipelines, generators, and electric industry balancing authorities and reliability coordinators.7 Notably, however, FERC declined to modify the no-bump rule for flowing interruptible gas in the Intraday 2 nomination cycle, and encouraged NAESB and individual pipelines to consider creating additional nomination cycles prior to Intraday 2.8 In the following years, FERC reiterated its reluctance both to change the no-bump rule and to impose additional intraday scheduling opportunities.9

Interdependency issues continued to draw attention because of events such as the disruptions of electricity and gas services that occurred in the Southwest in early 2011. In July 2012, the Commission commenced a series of public conferences on gas-electric coordination issues in its Docket No. AD12-12-000. The extensive oral and written submissions the Commission received in that forum contributed to new rules issued in 2013 authorizing electric transmission providers and interstate natural gas pipelines to share non-public, operational information (including customer-specific and other commercially sensitive data) to promote reliability and enhance operational planning for both industries.10

Even more compelling, the extreme spikes in spot gas and electricity prices, accompanied by widespread unplanned outages of gas-fired generation facilities, experienced in the eastern United States, and especially in New England, during the polar vortex of January 2014 brought gas-electric interdependency to the attention of mainstream media. Though likely planned before that event, the Commission's proposed changes to pipeline nominations and scheduling procedures soon followed.

NAESB's Follow-up

NAESB responded to the NOPR by immediately...