Natural Gas –generation intersection Michael Goldenberg The views expressed are those of the presenter and do not necessarily reflect the views of the Federal Energy Regulatory Commission or any Commissioner

NATURAL GAS & ELECTRICITY

The Problem Coal Fired Plant Natural Gas Plant

Electric Natural Gas Speed of Light: 186,000 mi/sec 10-20 mph

Load of a Gas Fired Generator NERC: 2011 Special Reliability Assessment: A Primer of the Natural Gas and Electric Power Interdependency in the United States

Factors Affecting Availability of Natural Gas for Generation Non-coincident peaks Diversity of Generation Resources Diversity of Gas Resources Line Pack/Storage Excess Pipeline Capacity Vertically Integrated Electric Utilities

Projected Increase in Natural Gas vs. Coal Generation Electricity generation capacity additions by fuel type, including combined heat and power, 2012-2040 (gigawatts) EIA, Annual Energy Outlook 2013, http://www.eia.gov/forecasts/aeo/MT_electric.cfm

RTO Generators’ Reliance on IT or Released Capacity R. Kruse.Harvard Electricity Policy Group, http://www.hks.harvard.edu/hepg/Papers/2012/Kruse_Richard_Oct2012.pdf

Non-RTO Utilities “[For Southern Companies’ gas-fired resources] sufficient amounts of firm gas transportation and storage capacity are maintained for the reliable operation of such facilities when needed to satisfy system demand.” Comments of Southern Companies, Docket No. AD12-12, at 2.

Non-RTO Pipeline Capacity Sharing Commission accepted contract under which Southern Company Services, as agent, purchased transportation capacity it could share among various operating entities: “the Commission agrees with the assertions of Southern that such an arrangement is convenient for the affiliated utilities which are jointly and severally liable for the demand charges of Southern …” Southern Natural Gas Co., 123 FERC ¶61263 (2008)

Basis Differentials During Vortex NGI’s Daily Gas Price Index, Avg. Daily Prices

Effect on Generation Availability PJM reported to the Commission: Pipelines issued operational flow orders so IT shippers could not nominate. Pipelines issued notices affirming the restriction of customers to their hourly schedules and the penalties that would apply if they went over their ratable amounts. Reduction in supply from the Marcellus due to the cold weather. As such, gas availability for power generation was tight over the entire footprint. January 10, 2014 report http://www.pjm.com/~/media/documents/reports/20140113-pjm-response-to-data-request-for-january%202014-weather-events.ashx

Recent Commission Waivers Granted PJM waiver of OA to permit communication with pipelines pursuant to Order No. 787. PJM, 146 FERC ¶61,003 (2014) Granted PJM and NYISO waivers to permit make-whole payments for generators with costs greater than offer cap. PJM,146 FERC ¶61,041 2014), NYISO, 146 FERC ¶61,061(2014). Granted PJM Temporary Waiver of $1,000 Offer Cap for cost-based generator offers. PJM, 146 FERC ¶61,078 (2014).

PJM Uplift Charges PJM IMM reports $630 million in uplift charges for January 2014 alone. Market Monitor Report, (Feb. 24, 2014). $74 million is Day-Ahead and Real-Time lost opportunity costs. $392 million due to conservative operations IMM Issues to be addressed: Improve incorporation of conservative operations into pricing Gas/electric scheduling/commitment.

Discussion Questions Firm Transportation in Organized Markets Free rider problem Capacity Markets RTO’s System Planning Gas Market Flexibility Weekend Gas Purchasing Pipeline Scheduling Capacity and Natural Gas Reassignment or Resale