California ISO opposes any national gas supply assurance policy in that state

The California Independent System Operator (CAISO) filed with the Federal Energy Regulatory Commission on Feb. 18 a report on fuel assurance issues pursuant to a November 2014 directive of the commission related to increasing dependency of the power grid on sometimes volatile natural gas supplies for power generation.

The report noted: “The CAISO operates the high-voltage electric transmission system that makes up approximately 80 percent of California’s power grid and a small portion of Nevada. The CAISO operates this system through the use of energy and ancillary services markets. The CAISO uses market processes and rules, and has also taken steps outside of its markets, to ensure sufficient fuel exists to support reliable electric service in its balancing authority area.

“Fuel assurance is a concern in every organized electric market but the issues associated with fuel assurance and the strategies to address these issues vary widely. The CAISO’s resource portfolio differs from those of eastern organized markets and increasing amounts of variable energy resources supplying power to CAISO load and the nature of California’s natural gas supply infrastructure have created different fuel assurance issues.

“For example, the CAISO needs to ensure it has adequate flexible capacity available to meet ramping needs in both the downward and upward directions to manage variability. This flexible capacity can come from different resources such as demand response, hydro-electric resources, and even variable energy resources themselves, but natural gas remains the primary fuel used to balance the system.

“However, in contrast to concerns expressed in eastern organized markets, the natural gas supply infrastructure serving gas-fired generators in the CAISO balancing authority is fairly robust. The CAISO’s fuel assurance strategy has three prongs: fuel predictability, fuel procurement, and fuel availability. The CAISO’s resource mix, market structure, available infrastructure, and other emerging considerations all inform these CAISO fuel assurance strategies. The important differences among fuel assurance issues and the strategies to address them across organized markets do not support developing a uniform fuel assurance rule. The CAISO, therefore, recommends that the Commission forbear from imposing a new uniform rule for fuel assurance planning or requirements across all organized markets.

“The Commission should instead assess best practices in each region and take into account regional differences in reviewing and approving any market mechanisms or rule changes developed by individual independent system operators or regional transmission providers. This approach will ensure that such mechanisms address the specific fuel assurance issues in each region.”

California PUC has gas supply requirements in place

In CAISO, natural gas-fired resources provided approximately 40% of supply in 2013, an increase from 39% in 2012 and 28% in 2011. Both the retirement of the San Onofre nuclear plant and a recent drought have, at least temporarily, impacted the percentage of natural gas in the resource mix.

California has an estimated natural gas demand of 6.1 billion cubic feet per day. Unlike other organized market footprints, the vast majority of California’s natural gas demand is served by two intrastate companies under the jurisdiction of the California Public Utilities Commission (CPUC), rather than interstate pipeline companies regulated by FERC. This has several important implications for the design of the system and service provided by Pacific Gas and Electric (PG&E) and Southern California Gas (SoCalGas), the report pointed out.

  • First, the CPUC requires PG&E and SoCalGas to expand their pipelines based on specific reliability-based design criteria rather than in response to firm contract demand. Similar to the electric sector, the CPUC requires both companies to expand the system to meet certain “1-in-10 year” high customer demand and drought conditions. Each company has additional requirements to maintain slack capacity on the system and planning criteria to address more severe scenarios.
  • Second, electric generator customers can elect to take service under a firm or interruptible option as well as firm service for small volume purchases that are more suitable for peaking resources. It is common utility practice in the West for gas-fired resources to purchase firm transportation services even on interstate pipelines.
  • Third, PG&E and SoCalGas are not subject to FERC’s single day balancing requirement. PG&E currently provides monthly balancing while SoCalGas provides for 5-day balancing under normal conditions. This provides natural gas-fired resources additional flexibility backed by a robust natural gas transportation and storage system.
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.