On August 20, 2012, FERC continued its series of regional technical conferences to explore ways to improve coordination between the electricity and natural gas markets. The first conference was held on August 6 in St. Louis, Missouri, and covered issues specific to the Midwest Region. The August 20 conference, held in Boston, addressed issues specific to the New England Independent System Operator Inc. (“ISO”) area.
In advance of the conferences, the Commission has directed participants to focus on issues relevant to both industries [PDF], including: (1) communications, coordination and information sharing; (2) scheduling; (3) market structures and rules; and (4) reliability concerns.
It was clear from the beginning of the Northeast regional conference that the reliability concerns slated for discussion in these conferences are more pressing in New England than in other areas. Commissioner LaFleur noted that because the area presents a unique set of challenges, New England is the only single ISO area to get its own conference.
FERC staff began the conference with a presentation on infrastructure in New England. The presentation highlighted New England’s growing reliance on natural gas to fuel electric generation, as well as the lack of physical gas storage and production in New England. A recurrent theme throughout the day from several panel speakers was that New England has a physical problem, in that pipeline capacity is fully contracted, leaving very little flexibility for scheduling or emergency situations.
Much of the discussion during the day referenced or responded to points made in a draft discussion paper presented in advance of the conference by the ISO. The panel first addressed the ISO’s proposal to move up the electric scheduling timeline to better coordinate the gas and electric trading days. On behalf of the ISO, Vamsi Chadalavada emphasized that the ISO views any scheduling changes as just one piece of a suite of solutions. However, the roundtable participants did not reach consensus on whether scheduling changes would be helpful, with several speakers noting that scheduling changes alone will not address the lack of pipeline capacity.
The panel next discussed the ISO’s Forward Capacity Market (“FCM”) and associated market rules. Several speakers expressed concern as to whether modifications to the FCM would be adequate to address physical capacity problems. Mr. Chadalavada stated that the ISO will be studying supplemental procurement options between now and the 2018 FCM, including a fuel survey of all resources, as well as making some market rule changes to address certain issues and incent performance under the rules. Regardless of possible FCM fixes, several participants noted that the region will need to develop a funding mechanism to recover costs associated with the construction of new pipeline capacity – similar to mechanisms used to recover for electric transmission construction. Everyone seemed to agree that FERC’s involvement and the imposition of timelines will help develop this funding mechanism.
During the discussion of possible communications improvements, Mr. Chadalavada stated that despite good communication between the ISO and pipelines, the ISO has identified some necessary tariff changes to try to avoid gas maintenance during summer electric peaks and to improve active coordination in real-time. Many of the panel speakers agreed that, on an overall basis, communication between the different market participants is fairly good, but that good communications do not solve the physical problem of constrained pipeline capacity.
During the afternoon session, Commissioner LaFleur suggested that the participants discuss specific next steps rather than following the agenda to discuss reliability issues (which had been addressed throughout the day). The main take-away from that discussion was that most roundtable participants agreed that a smaller steering group was needed to continue working on concrete solutions, with FERC staff involvement and a FERC-enforced time frame.
To help keep industry participants and the public better informed, FERC has added a new gas-electric coordination section to its website and has created a new Twitter feed, #FERC-GEC. There will also be a live audiocast of the West Region conference on August 28, available here, and a live webcast of the Mid-Atlantic Region conference on August 30, available here. Check our blog after the remaining conferences for more summaries and analysis.