FERC Revises Gas Nomination Regulations, Leaves Gas Day Unchanged

by Akin Gump Strauss Hauer & Feld LLP
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On April 16, 2015, the Federal Energy Regulatory Commission (FERC) issued Order No. 809, its Final Rule regarding the coordination of scheduling between interstate natural gas pipelines and electric public utilities.  FERC ordered several scheduling changes and revised its regulations to require pipelines to offer multiparty firm transportation contracts upon shipper request.  However, FERC declined to change the start of the natural gas operating day (“Gas Day”), stating that the record did not support such a change, given its possible detrimental effects on natural gas pipeline operations.

Increasing dependence on natural-gas-fired generation has focused attention on scheduling mismatches between natural gas pipelines and gas-fired generation facilities, particularly after extreme cold weather events in the Southwest and Northeast highlighted the need for improved coordination.  After hosting multiple technical conferences on gas/electric interdependence and coordination, FERC issued a Notice of Proposed Rulemaking (NOPR) that proposed three changes to gas scheduling practices: (1) move the start of the Gas Day from 9 a.m. Central Clock Time (CCT) to 4 p.m. CCT; (2) move the start of the first day-ahead gas nomination opportunity (the “Timely Nomination Cycle”) from 11:30 a.m. CCT to 1 p.m. CCT and (3) provide for four intraday nomination cycles, as opposed to two.  The NOPR also proposed requiring that pipelines offer multiparty transportation contracts that would allow multiple shippers to share pipeline capacity to increase flexibility. 

The NOPR called on the North American Energy Standards Board (NAESB) to work with the gas and electric industries to develop standards in response to the proposals in the NOPR.  Working with industry participants, NAESB modified its Wholesale Gas Quadrant (WGQ) business practice standards to move the start of the Timely Nomination Cycle from 11:30 a.m. CCT to 1 p.m. CCT and to establish three intraday nomination cycles.  However, NAESB was unable to reach a consensus regarding the start of the Gas Day.

In Order No. 809, FERC adopted NAESB’s modified business practice standards.  Examining the record with regard to a change in the Gas Day, it concluded that a change in the start of the Gas Day might not “provide sufficient benefits to outweigh the operational and safety impacts and costs” of the change, particularly the increased need for nighttime work from pipeline and local distribution company employees.  FERC observed that it had requested information about gas generator derates from the Regional Transmission Organizations (RTO) and Independent System Operators (ISO), and that the resulting data provided only limited evidence that the timing of the Gas Day was a primary contributor even to those derates that were connected to fuel issues.  Therefore, FERC concluded that the evidence did not warrant ordering a nationwide change in the Gas Day.

In addition to changes in the timing of nominations, FERC also decided that it would require pipelines to offer multiparty firm transportation contracts, as proposed in the NOPR, but that the requirement would become effective only if shippers requested this option.  FERC declined to order a blanket waiver of the Shipper-Must-Have-Title rule for the purposes of multiparty contracts, but stated that it would consider such waivers on a case-by-case basis if granting the waiver would be in the public interest.  FERC specifically noted that assisting gas-fired generators in gaining access to firm natural gas transportation service might be such a case.

FERC’s decision to leave the Gas Day untouched further suggests that it believes that resolving the coordination issue is a problem for both industries.  On the same day that it issued the NOPR, FERC also instituted proceedings under Section 206 of the Federal Power Act to ensure that the RTOs and ISOs institute scheduling practices that mesh with the revised gas nomination schedules.  FERC also initiated a proceeding under Section 5 of the Natural Gas Act to determine whether natural gas pipelines were giving proper notice of offers to purchase released capacity.  FERC also observed that RTOs and ISOs that have been most affected by gas derates, PJM and ISO-NE, have undertaken independent steps to address generator performance.

 

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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