FERC Finalizes Rule on Natural Gas and Electric Scheduling Practices

by Morgan Lewis
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The reforms are aimed to address natural gas and electric scheduling concerns resulting from the increase in gas-fired generation, to provide greater flexibility to industry participants, and to better ensure reliable and efficient operation of the electric and interstate gas pipeline systems.

On April 16, the Federal Energy Regulatory Commission (the Commission) issued Order No. 809, revising its regulations relating to scheduling transportation service on interstate natural gas pipelines.[1] Order No. 809 is the latest of the Commission’s efforts over the last three years to address certain coordination issues with the scheduling practices of the wholesale natural gas and electric industries that arise from electric generators’ increased reliance on natural gas.

The Final Rule adopts portions of the Commission’s March 20, 2014 Notice of Proposed Rulemaking (NOPR) in which the Commission proposed the following three changes to the nationwide natural gas scheduling practices: (1) moving the start of the natural gas operating day from 9:00 a.m. to 4:00 a.m. central time to better align with the electric operating day, (2) moving the start of the first gas nomination cycle for day-ahead pipeline scheduling from 11:30 a.m. to 1:00 p.m. central time (Timely Nomination Cycle), and (3) modifying the intraday nomination timeline to provide additional intraday nomination cycles. Following the NOPR’s issuance, the Commission provided the electric and natural gas industries with six months to reach consensus on the NOPR proposals through the North American Energy Standards Board (NAESB).

In the Final Rule, the Commission declined to adopt the modified start time to the gas operating day. Otherwise, the Final Rule largely reflects acceptance of the NOPR’s key scheduling proposals. The Commission noted that it is revising its regulations to incorporate by reference the modified NAESB’s Wholesale Gas Quadrant business practice standards, which set forth scheduling revisions (discussed in more detail below). Interstate natural gas pipelines must comply with the revised NAESB standards that the Final Rule incorporates beginning on April 1, 2016. Pipelines must also file tariff records in accordance with the Final Rule’s compliance filing requirements to reflect the changed standards by February 1, 2016. The Final Rule’s effective date is 75 days after its publication in the Federal Register.

Revisions to Day-Ahead and Intraday Natural Gas Nomination Cycles

The Final Rule adopts two proposals to revise the practices that interstate pipelines use to schedule natural gas transportation service. Currently, shippers have two nomination opportunities prior to the day of gas flow: the Timely Nomination Cycle and the Evening Nomination Cycle. In addition, shippers have two more opportunities to schedule nominations on the day of gas flow: Intraday 1 Nomination Cycle and Intraday 2 Nomination Cycle.

With regard to day-ahead nominations, Order No. 809 moves the deadline for submitting nominations in the Timely Nomination Cycle from 11:30 a.m. to 1:00 p.m. central time to provide sufficient time for electric utilities to understand their commitments in the day-ahead electric market before arranging for natural gas supply and pipeline transportation. Originally presented in the NOPR, the proposal to move the start of the Timely Nomination Cycle to 1:00 p.m. was incorporated by NAESB into its revised standards. Additionally, NAESB moved the deadline for pipelines to notify shippers of their scheduled quantities from 4:30 p.m. to 5:00 p.m central time. The Commission adopted both proposals in the revised NAESB standards and amended its regulations under 18 C.F.R. § 284 to reflect those changes.

The Commission also adopted NAESB’s revised standards with respect to intraday scheduling. Although the NOPR proposed four intraday nomination opportunities, the revised NAESB standards provide for only three such opportunities. In accepting the NAESB proposal, the Commission noted that the revised standards garnered broad support in both the electric and natural gas industries because the proposed three intraday nomination cycles will allow sufficient time for processing gas nominations, avoid overlapping nomination cycles, and allow for most scheduling work to be completed during regular business hours. The Commission also agreed that although the NAESB proposal deviates slightly from the NOPR, it still meets the NOPR’s goals because the additional nomination opportunity provides gas-fired generators and other pipeline shippers with additional flexibility. Although the Commission concluded that, on balance, adopting the NAESB proposal represents a step forward for ensuring scheduling flexibility, it urged the gas and electric industries to explore the potential for more efficient, computerized scheduling to provide even greater scheduling flexibility.

No Change to the Gas Day

In the NOPR, the Commission expressed concern about the potential effect of the natural gas and electric operating days’ differing start times for the operation of the electric transmission system and interstate natural gas pipelines. To address this issue, the NOPR proposed moving the start of the natural gas operating day from 9:00 a.m. to 4:00 a.m. central time to ensure that gas-fired generators are able to retain sufficient natural gas capacity during the morning electric ramp-up period. Ultimately, the Commission declined to adopt the NOPR’s proposal. After considering comments and concerns from industry participants, the Commission concluded that gas-fired generator derates due to fuel limitations appear to be a more isolated regional issue during winter months that do not warrant changing the start time of the nationwide natural gas operating day. The Commission also found compelling the arguments from some commenters who identified substantial costs and potential safety issues that would accompany the proposed 4:00 a.m. start time. In declining to adopt this proposal, the Commission noted ongoing regional efforts and tariff reforms that ISO New England and PJM Interconnection have undertaken to address generator performance and availability that may alleviate some of the electric industry’s fuel supply concerns underlying the gas day change proposal.

Changes to ISO and RTO Day-Ahead Scheduling Practices

Along with issuing the NOPR on March 20, 2014, the Commission instituted a proceeding under section 206 of the Federal Power Act (FPA) to ensure that Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) adjust their day-ahead scheduling practices to correlate with the revisions that were ultimately adopted by the Final Rule.[2] Specifically, the section 206 order requires each ISO and RTO to adjust the time that the results of its day-ahead energy market and reliability unit commitment process are posted to a time in advance of the Timely and Evening Nomination Cycles, respectively. This allows gas-fired generators to procure natural gas supply and pipeline transportation capacity. ISOs and RTOs must propose tariff revisions that reflect these changes within 90 days after the Final Rule is published in the Federal Register or otherwise show cause why existing scheduling practices need not be changed.

Multi-Party Transportation Contracts

The Final Rule also amends the Commission’s regulations to require interstate natural gas pipelines that offer firm transportation service under subpart B or G of Part 284 to allow multiple shippers associated with a designated agent or asset manager to be jointly and severally liable under a single firm transportation service agreement. The Commission explained that although multi-party firm transportation contracts will provide shippers with greater flexibility, the Commission would only require pipelines to offer such an option if a shipper requested it. If a shipper makes such a request, a pipeline must file tariff changes that facilitate the change within 60 days of the request.

Conclusion

Order No. 809 represents the Commission’s latest action to address certain natural gas and electric industry coordination challenges that result from the divergent utility scheduling practices. The Commission anticipates that the changes in the Final Rule will improve coordination among the industries while still allowing for ongoing regional efforts to address coordination needs that arise from the electric industry’s increased reliance on natural gas.


[1]. Coordination of the Scheduling Processes of Interstate Natural Gas Pipelines and Public Utilities, Order No. 809, 151 FERC ¶ 61,049 (2015), available here (Order No. 809 or the Final Rule).

[2]. California Independent System Operator Corp., et al, order initiating investigation into ISO/RTO scheduling practices and establishing paper hearing procedures, 146 FERC ¶ 61,202 (2014).

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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