AEP says more work needs to be done on gas-electric coordination

American Electric Power (NYSE: AEP) told the Federal Energy Regulatory Commission that it supports commission efforts to promote gas-electric coordination, particularly in light of coal-fired power plant shutdowns being made by it and other power generators.

AEP in a Nov. 25 filing applauded the efforts of FERC in issuing its Notice of Proposed Rulemaking, which seeks to resolve issues currently created by lack of scheduling coordination between the natural gas pipelines and the electric industry. “These scheduling issues not only create economic inefficiencies; they foster severe reliability risks to the electric grid,” AEP noted.

As a result of the U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS), due to take effect in April 2015, AEP is retiring 6,588 MW of coal-fired generation within the next seven months, and another 998 MW in 2016, the company noted.

“The EPA’s Clean Power Plan likely will result in more generation retirements, although those numbers still are in flux,” it added. “AEP is one of many of this nation’s historically coal-based generation owners that will be retiring base load generation, much of it prematurely, only to be replaced by higher cost generation and sub-optimal alternative capacity resources. In fact, PJM Interconnection, L.L.C. (‘PJM’), the transmission operator for much of the Mid-Atlantic region, reports that generation within its footprint will be retiring 11,769 MW of its coal-based generation by the 2015-16 delivery year with a net cumulative change of 8,359 MW for the same period. Although some of those retirements will be replaced with natural gas, not nearly enough gas plants are currently under construction to replace the coal plants by next spring. Additionally, the nation does not have assurance that those gas plants that are under construction will be able to seamlessly replace their coal predecessors.”

NAESB did ‘admirable’ work in a difficult situation, says AEP

The NOPR that the commission has issued proposes solutions to some of the scheduling problems the pipelines and power industry face. In particular, the NOPR proposes moving the start of the gas day to 4 a.m., adding two new Intraday trading cycles, and moving the timely nomination cycle to later in the day. The commission tasked the North American Energy Standards Board (NAESB) with attempting to reach consensus between the two industries to propose alternatives to its own recommendations by September of this year.

“Although NAESB mounted an admirable effort, in the end virtually all of the several hundred participants voted the same in binding votes as they had in early straw polls,” AEP noted. “The only factor on which both industries could agree was a suggestion to add one intraday nomination cycle (not the two recommended in the NOPR). Many participants wanted far more than one extra, but one additional cycle was the compromise position on which all could agree. Although a consensus goal was a worthy effort, a compromise position may not be the best path forward when grid reliability is at risk.

“One sentiment that some participants voiced during the NAESB effort is the instant docket and other gas-electric harmonization attempts are a gross overreaction to the ‘Polar Vortex’ crisis much of the nation’s grid faced in January 2014. However, gas-electric harmonization has been a concern for decades. This is neither a new situation nor an overreaction. If anything, the Polar Vortex should be considered a welcome warning sign and learning experience. The North American electric grid held in the face of horrendous conditions – but it barely held. The Polar Vortex identified precisely where our problems exist. Unfortunately, many of those are related to gas-electric harmonization.”

With the exception of the proposed 4 a.m. start to the gas day, on which AEP takes no position, AEP said it supports the measures proposed in the NOPR. In particular, AEP supports the following proposed revisions to the status quo:

  • Two new intraday nomination cycles. Currently, consumers who wish to schedule pipeline capacity must do so through two day-ahead nomination cycles (“noms”) and two intraday (“ID”) noms on many of the FERC regulated interstate pipelines. The NOPR proposes a change to two day-ahead noms and four IDs.
  • A later timely nomination cycle. The changes proposed to daily nomination timings are designed to bring decision making as close to real-time as possible. Such changes will maximize the efficiency of our existing infrastructure, and AEP supports them.

“These proposals would be improvements over the status quo, recognizing that the future may involve a drastic increase in gas-fired electric generation,” AEP added. “That said, efforts should not stop there. The gas and electric industries must also look for ways to maximize existing pipeline capacity while examining business models that would provide incentives for the gas industry to consider expanding its own infrastructure. Throughout the NAESB proceedings, concerns were expressed by certain gas industry participants that they should not be expected to change their business practices for the sake of one consumer. However, that type of outlook is turning a blind eye toward the future of the natural gas industry market and the consumption of gas by the electric industry. The Energy Information Administration projects in its 2014 Annual Energy Outlook that the natural gas industry market as a whole is expected to increase by 19 percent over the next 25 years, with the electric industry consuming one third of the increase and becoming the gas industry’s largest consumer.

“In fact, 73 percent of new electric capacity generation added between 2013 and 2040 will be gas-fired. Therefore, this ‘single customer’ concern is not valid when this single customer will represent a significant percentage of the gas industry business.”

AEP is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states. AEP ranks among the nation’s largest generators of electricity, owning nearly 38,000 MW of capacity in the U.S.

TVA also says both sides need to get it together

The Tennessee Valley Authority, another major coal-fired generator, said in its own Nov. 25 comments in this case: “We are an industry in transformation, experiencing substantial changes in generation resource mix and meaningful changes to supply availability and location. Yet, the possibilities of changing existing industry practices that have been in place for over a decade are still met with reluctance. While change is usually met with apprehension, it is imperative to take the necessary steps to align both gas and power in order to increase natural gas resources within the power sector and promote high reliability of service.

“TVA appreciates the steps proposed and clarification given in the NOPR, but urges the Commission to go further. The existing bumping/no-bump restriction developed two decades ago must be eliminated to allow those willing to pay the cost of [firm transportation] to fully utilize their assets. It is time for the natural gas policies to rightfully acknowledge that FT rights exist for the entire gas day. The time of day should not force a FT shipper paying just and reasonable rates to be denied access to an asset. Some pipelines have offered hourly nominations for years. As technology continues to advance, processing times will continue to shorten. Hourly nominations should be the offset in the gas industry for 15-minute scheduling in the electric industry.

“Finally, shippers contract for FT that is physically unable to serve its market and subsequently nominate on a perpetual secondary out-of-path basis. If this scenario is not addressed, those paying for FT under primary and secondary in-path rights will continue to subsidize those paying for an inch while taking a mile under former first-come-first-served protocols.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.