FERC Declines to Change "Gas Day" Start Time; Adopts Other Proposed Natural Gas Scheduling and Contracting Changes

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On April 16, 2015, the Federal Energy Regulatory Commission (FERC) issued a final rulemaking order (Order No. 809 in Docket RM14-2-000) in which it declined to adopt the controversial proposed change in the "Gas Day" start time.

In March 2014, FERC issued a notice of proposed rulemaking (NOPR) in which it proposed to change the start of the "Gas Day" – the 24-hour period during which natural gas transportation through pipelines is nominated and scheduled – from 9:00 a.m. to 4:00 a.m. Central Clock Time (CCT). The NOPR was part of FERC's ongoing effort to promote electric supply reliability by encouraging improved coordination between the natural gas and electric power industries.

The proposed change in the Gas Day was FERC's response to electric industry requests to make the Gas Day coincide with the electric day, which generally begins at 12:00 midnight local time. Noting the benefit of a standardized nationwide Gas Day, rather than one that begins at different times, FERC declined to make this change. Instead, FERC proposed changes in the Gas Day that it reasoned would promote electric generation efficiency by allowing generators to schedule their gas transportation and supply on a day-ahead basis. In addition, FERC noted that the 4:00 a.m. Gas Day would start before the morning ramp-up in electric demand. With the current 9:00 a.m. CCT Gas Day, the morning ramp-up occurs near the end of each Gas Day, a time at which there is little flexibility for generators to arrange changes in gas supply and transportation arrangements.

Comments responding to the NOPR reflected a sharp disagreement between natural gas and electric industry participants. Electric industry comments, filed by independent electric transmission system operators (ISOs), regional transmission organizations (RTOs) and electric power generators, strongly supported the proposed 4:00 a.m. CCT Gas Day start time, citing the benefits that FERC described in the NOPR. Commenters aligned with the natural gas industry, on the other hand, strongly opposed the change in the start of the Gas Day, citing concerns regarding safety, staffing and the high cost of implementation.

After receiving comments on the NOPR, FERC solicited information that might support its proposed rulemaking from six ISOs and RTOs: California ISO (CAISO), Southwest Power Pool (SPP), Midcontinent ISO (MISO), ISO-New England (ISO-NE), New York ISO (NYISO), and PJM Interconnection (PJM). FERC asked how often natural gas-fired generation facilities were declared unavailable or operated at reduced output because the generators had exhausted their daily nomination of natural gas transportation service before the end of the Gas Day.

CAISO, MISO and SPP were unable to identify real-world problems regarding lack of fuel or derates related to the current 9:00 a.m. CCT start of the Gas Day. To the contrary, CAISO stated that "gas-fired generators operating in [the CAISO] balancing authority generally do not face problems securing sufficient fuel to meet the morning electric ramp under existing electric and gas market timelines." ISO-NE, NYISO, and PJM indicated that they had experienced circumstances in which gas-fired generators had to de-rate because they had exhausted their natural gas transportation service nominations prior to the morning ramp; however, those responses were less than decisive because the entities stated that they lack objective information regarding derates and exhaustion of fuel relating to the end of the Gas Day. Several gas industry organizations subsequently filed comments claiming that the ISO/RTO responses confirmed the lack of justification for the change in the Gas Day start time.

While FERC declined to change the Gas Day start time, on the basis of the comments and responses to data requests, it adopted all of the other changes to gas pipeline scheduling and contracting contemplated under the NOPR, which it contends benefit all pipeline shippers. These changes are as follows:

  • Changing the closing time for the day-ahead Timely Nomination Cycle from 11:30 a.m. to 1:00 p.m. CCT. The later closing time is intended to allow electric generators to use the Timely Day Ahead cycle, which is the most liquid cycle, to schedule gas after the ISO/RTO has accepted its bid for the next day.
  • Increasing the number of intraday nomination cycles from two to three. The additional cycle is intended provide greater flexibility for pipeline shippers to adjust scheduled gas quantities during each Gas Day. FERC had proposed to add two additional intraday cycles; however, The North American Energy Standards Board (NAESB), working through the Gas Electric Harmonization Forum, developed a consensus recommendation supported by gas and electric industry participants for one additional intraday cycle.
  • Requiring pipelines to allow multi-party service agreements for firm transportation services. FERC noted the potential advantages of multiple entities sharing service agreements, without the need to use the capacity release process, and that several pipelines already offer the option of multi-party service agreements. Rather than require all pipelines to change their tariffs to incorporate multi-party contracting, FERC changed its regulations to require a pipeline to modify its tariff within 60 days after receiving a shipper request for a multi-party contract.

FERC noted that ISOs and RTOs may need to change their procedures in response to the rulemaking. FERC has initiated show cause proceedings under Section 206 of the Federal Power Act addressing the six ISOs and RTOs listed above to facilitate such changes.

Several electric industry commenters requested that FERC eliminate the "no-bump" rule. Under the no-bump rule, firm customers may not bump previously scheduled interruptible services during the final nomination cycle of each Gas Day. FERC noted the continuing need for the no-bump rule to provide a level of certainty for interruptible services. The addition of a third intraday cycle effectively doubles the intraday opportunities to bump interruptible services.

FERC decided not to act on requests intended to address regional issues. FERC specifically declined to address issues raised by the Desert Southwest Pipeline Stakeholders regarding local issues such as bumping of previously scheduled secondary firm transportation. FERC noted that regional issues were best addressed on a localized basis and encouraged the affected companies to work toward solutions tailored to their individual needs.

FERC amended its rules to incorporate NAESB's revised standards, but recognized that it would take some time for the interstate pipelines and their customers to make changes necessary to implement the new standards. Accordingly, FERC established April 1, 2016 as the date by which interstate natural gas pipeline must comply with the revised NAESB standards. In addition, pipelines must make tariff filings proposing to incorporate the new standards by February 1, 2016.

The rulemaking marks the end of a year-long debate regarding the change to the Gas Day start time. Opponents of the change demonstrated that it would be burdensome, costly and raised safety concerns. Proponents, on the other hand, generally failed to demonstrate objective benefits. Therefore, FERC's decision appears to be a well-reasoned balancing of competing interests. While the scope of the final rulemaking is modest relative to the contemplated NOPR, the changes to scheduling and contracting adopted in the rulemaking promise to provide additional flexibility to pipeline customers, without excessive burdens to the pipelines.

William Rice
Washington, D.C.
+1 202 626 9602

wrice@kslaw.com
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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