Power plants burning natural gas, and the pipelines supplying them, need to tighten communications to be ready for possible gas shortages if vulnerable parts of the country are hit with extreme weather this winter, Commissioner Philip Moeller of the Federal Energy Regulatory Commission said yesterday.
But FERC is likely to need more time to consider whether it needs to order a detailed alignment of gas suppliers and the power grid, Moeller told a Platts Energy Podium news conference.
Moeller's concerns about gas and power industry frictions led FERC to hold five regional conferences on the issue last month. The commissioners have not determined what actions they will order, but Moeller said the first priority should be close collaboration between pipelines and generators "so the right people are allowed to talk to each other so that we can manage the supply if it gets really, really cold," he said.
"My hope is that we focus on this heating season coming up to make sure the communications protocols are adequate in case we have a weather-related event that stresses the system, so that we do our best to ensure reliability of supply," Moeller said.
"Then we have longer-term issues," he added. "Do we need to have a formal rule change in terms of standards of conduct" bridging differences between the two industries? Or would it suffice to provide a more formal guidance to the industry "that clarifies that under certain conditions you can go across the wall and talk to somebody you normally aren't allowed to?"
The legal analysis of the issue is under way at FERC, he said. "I'm not sure what the result will be."
Eventually, the gas pipeline network will have to expand in New England and the Midwest, where gas generation is replacing coal-fired plants. But pipeline companies want to see fixed supply contracts before committing to expand their infrastructure. Merchant power plants say they can't take that financial risk because they aren't certain from day to day whether their plants will be called on to supply power. These issues won't get resolved quickly or easily, Moeller indicated.
A personal urgency
Moeller said he felt a personal urgency to make sure pipeline and power plant communication is as close as it can be this winter, particularly in New England and the Midwest, where demand for power plant gas is expanding steadily. He studied the issue as a participant in a National Petroleum Council review of unconventional gas and oil resources.
New production of shale gas pushed stored gas inventories far above five-year averages last winter, perhaps spreading complacency about potential gas shortages for generators. The storage surplus, while still very large, has been sinking this summer as low gas prices have caused producers to shut in or slow down gas well production.
The FERC hearings highlighted fundamental differences in the gas and electric power sectors. Their schedules for matching daily supply and demand for gas don't align well, creating the risk that some gas-dependent generators may not have enough supply to meet midday demands in severe winter weather.
Communication between the two sectors was also a prime topic in comments FERC solicited in a docket on gas-grid issues. The PJM Interconnection, which operates the power grid in the mid-Atlantic region, commented to FERC that the power and gas pipeline sectors "both possess transmission information about our respective systems that cannot be shared with the market participants."
"As a result, it would be appropriate for the commission to consider, as a threshold matter, making clear that the standards of conduct permit reliability information to be shared confidentially between electric and gas transmission system operators while still ensuring that confidential information is not inappropriately or prematurely released to the marketplace," PJM said. This issue should get fast-track consideration at FERC while larger policy issues are discussed and debated, PJM commented.
Moeller said proposals to require coordination of pipeline and power plant operating schedules predictably triggers push-back. It would ease worries about gas shortages if generators entered bids for gas earlier in the day, when supplies were larger. But then the generators would face a greater risk of making uncompetitive bids. "The earlier the trading day begins, the less you know" about the likely demand for gas and power, he said.
The Electric Power Supply Association said pipelines and generators do share information about operating schedules. But there are concerns that more detailed information about gas supply and power demands might give buyers or sellers an unfair competitive advantage. This would be a critical topic for FERC review, said EPSA, which represents merchant generators.
The New England Independent System Operator, in its comments to FERC, noted that it has stepped up information sharing with pipeline suppliers. But, it warned, "communications alone will not resolve all reliability issues associated with the region's dependence on natural gas."
New England ISO leaders are considering a plan to hold supplemental procurements for gas, liquefied natural gas or backup oil supplies to ensure adequate supplies over 2013 and 2014. Generators would be reimbursed for securing additional gas supplies -- and penalized if they didn't, the ISO said. If adopted by the ISO, the plan would require FERC approval.
Moeller said FERC recognizes the complexity of the issue. "People have told us go slowly. I respect that," he said, but he added, "It's not going to get any better on its own, given the trend lines."