Regions making advances in solving gas and electricity interdependency challenges – NARUC panel

Different regions across the country are making progress with the increasingly important interdependence between the nation’s natural gas delivery system and the electricity generation system, representatives of five regions told the NARUC 2013 Summer Committee Meetings in Denver, Colo., on July 22.

Because “one size does not fit all,” the methods used for solving the issues between the gas and electric systems differ from one region to another. In addition, because regions vary in their reliance on gas, so does the urgency of resolving conflicts.

“We are moving toward a condition where we are just plain using much more gas to generate electricity,” FERC Commissioner Phil Moeller said. Moeller noted that the use of more gas is essentially a 25-year trend that has accelerated recently for several reasons including the price of gas itself, which is historically low.

Managing the interdependency between the gas and electric systems is a nationwide challenge that is most extreme in the Northeast and New England, Moeller said. Gas-electric coordination is very important in New England for two reasons: the area is heavily dependent on natural gas, and it is at the end of the natural gas pipeline.

“People frequently refer to New England as the ‘canary in the coal mine’ and, if you know that story, it doesn’t work out so well for the canary,” Eric Johnson, director of external affairs for ISO-New England (ISO-NE), said. “We’re hoping not to be the canary in the coal mine.”

That pipeline constraint is problematic, Johnson said. “On paper, we have pretty good fuel diversity in our region, but when you look at the fleet, more than 50% of our electricity is produced by natural gas.”

As coal and oil units retire and more wind and solar resources come online, gas will become even more important than it is today, he said. To mitigate these issues, ISO-NE has made some changes in the timing of its markets to more closely match the timing of the gas markets. It is also discussing developing more pipeline infrastructure in the region, developing dual-fuel capabilities, and adjusting its wholesale market design.

“Our solution … is to provide the price incentives for resources to respond and, along with that, make sure that it’s clear that resources participating in the wholesale market in New England have a clear obligation to respond when called upon by the ISO,” Johnson said.

PJM Interconnection (PJM) is also facing challenges.

Historically, PJM has not been overly dependent on natural gas as a fuel source, but that’s changing, RTO officials said. Between now and 2016, approximately 14 GW of coal generation will be leaving the PJM market, while 9 GW to 10 GW of gas-fired generation will be coming online.

“We are going to be much more gas-dependent in PJM,” Andy Ott, PJM’s senior vice president for markets, said. “Gas has gone up to about 19% [of total generation]; projections are that will turn into about 40% by 2016 to 2017 unless something radically changes.”

PJM has taken a number of steps to ease the impact of those changes.

“We have engaged the gas industry [and] are communicating and talking much more than we have in the past,” Ott said. Beyond that, PJM has a senior task force charged with defining the issues resulting from PJM’s increasing dependence on natural gas. In addition, the group will perform a forward-planning analysis to evaluate the dependencies from a reliability perspective.

“What contingencies would we worry about on the gas system, what are the bottlenecks on the transmission side, what are the dependencies from a reliability perspective?” Ott said.

The group will also investigate the advantages of changing the timing of the wholesale electricity markets to better align with gas markets, and will evaluate a minimum standard for firm gas or dual-fuel capability.

While not a regional transmission organization, Southern Company (NYSE:SO) has four vertically integrated utilities serving a large portion of the southeast United States, and is also increasingly reliant on gas. In 2012, Southern Company was the third-largest utility industry user of natural gas, and all of it was used for electricity generation, officials said.

While Southern boasts a diversified fuel mix of coal, nuclear, natural gas, and renewables to generate 45,000 MW of electricity, it will be adding aggressively to its natural gas portfolio over the next several years. To ensure adequate supplies, the company makes sure it has ample diversity of fuel type, source, and delivery method. 

“We make sure that we’ve got supplier diversity in terms of our fuel transportation providers,” Jeff Burleson, VP of system planning for Southern Company, said. “Regardless of whether it’s rail transportation for coal or interstate pipeline for gas, we want to be sure we’ve got diversity of suppliers in the event that there’s a problem with any one of those.”

The company makes sure it has fuel diversity as well as basin diversity so it doesn’t become dependent on one basin for coal, or all of its natural gas from one basin.

The RTO that manages electricity across much of the midcontinent is also working through its challenges.

“In the beginning, the gas infrastructure wasn’t constructed to move this much gas for electricity,but we’re all using it,” Clair Moeller, EVP of transmission and technology for the Midcontinent ISO (MISO), said.

To manage the more than 60 interstate gas pipelines that will be in its service territory when the Entergy (NYSE:ETR) merger is complete, Moeller said the RTO is heavily engaged in interregional coordination and, like PJM, is involved in the Eastern Interconnection Planning Collaborative (EIPC).

As with the other regions, MISO’s dependence on natural gas is expected to increase when coal plants retire by 2016 to comply with EPA air quality regulations. “About 12,000 MW of coal will be retiring, leaving the MISO footprint about 7,000 MW short in the 2016 timeframe,” he said, noting that the organization has already begun the shift to gas.

“We’ve moved from about 3% [of generation] in 2009 to 9% last year.  During that same time frame, wind went from less than 1% to about 7% of the energy that serves MISO,” he noted. Grid operators rely on quick-start gas generators to manage the variable generation derived from wind and solar resources.

In addition, gas generation historically peaked in the summer when release gas was available and reliable. Moeller noted that it didn’t make fiscal sense to enter into firm gas contracts for two weeks during the summer. Accordingly the RTO has about 18,000 MW of gas generation that is on non-firm contract.

Accordingly, MISO is working to get satisfactory answers to several pivotal questions that will help it gauge how much gas it will need and under what circumstances, as well as what resources it can count on under what conditions. For example, he said, much of MISO’s demand response is air conditioner load, which does very little if called upon in February, he said.

While the western United States outside of California has neither an RTO nor organized markets, the Western Interstate Energy Board is working to get a handle on the challenges of increasing reliance on gas. Policy analyst Alaine Ginocchio said the group is also affiliated with the State/Provincial Steering Committee (SPSC), which is conducting a study of gas-electric interdependency across the entire Western Interconnection. That study complements the study of the Eastern Interconnection being conducted by EIPC, she said.

The West has relatively little coal-fired generation compared to the Midwest and eastern United States. Nonetheless, the area is grappling with two questions, which will be addressed by the SPSC study. The first phase of the study will endeavor to answer whether there will be adequate natural gas infrastructure to meet long term needs, while the second phase will examine whether the gas system has adequate short-term operational flexibility.

Because coal retirements aren’t as significant an issue in the West as elsewhere, the region’s highest level of interest is using gas to integrate variable energy, including a significant amount of wind generation.