NARUC panelists say gas, electric industry coordination needs to continue

With more natural gas-fired generation being added in power markets and FERC orders aiding the convergence of the gas and electric power industries, coordination among the two industries should continue, and there is room for improvement, speakers said Feb. 16 at the winter committee meetings of the National Association of Regulatory Utility Commissioners (NARUC) held in Washington, D.C.

“I think we have a ways to go, but we’ve made a lot of progress,” said Philip Moeller, senior vice president of energy delivery and chief customer solutions officer at the Edison Electric Institute.

Some of that progress stems from FERC orders and the work of the North American Energy Standards Board (NAESB), which helped the power and gas industries share information on operational challenges dating back to the early 2000s, said Moeller, who is also a former FERC commissioner.

Gas production changes such as the emergence of the Marcellus and Utica shales have changed the flows on some pipelines and currently low gas prices are helping some market participants, but state regulators may struggle to keep up with numerous market changes, Commissioner Diane Burman of the New York State Public Service Commission, said.

Independent system operators are working through fuel assurance issues for power plants, with the contracting policies of generators and the use of gas storage a frequent topic of discussion, said Burman, who moderated the discussion on the NARUC gas committee.

Some states have restructured their retail power markets to foster competition and others have not, but the market design choices must be grounded in the capability of both the power and gas systems, Burman said.

The Midcontinent ISO (MISO) covers states with traditional regulation and a couple that have restructured their markets, noted Michelle Bloodworth, executive director of external affairs for MISO. Bloodworth declined to say if one of those markets is better overall, but she believes it is easier to attract investment and infrastructure when states have vertically integrated markets.

“We think we need more infrastructure” on the gas side, or at least new services from pipelines or gas utilities to improve the ability of gas-fired generators to obtain the gas they need, because those needs are changing, Bloodworth said.

“We’ll need gas-fired generation to play a different role than it has in the past,” with more peaking and faster ramping requirements to support intermittent renewable resources, she said.

“We’ll need more responsive services” from the gas industry, such as no-notice service to meet the needs of gas-fired generators, said Bloodworth, who moved to MISO in March 2015 after serving as senior director of market development at America’s Natural Gas Alliance.

With more wind power resources in the MISO footprint, there may be more of a peaking generation need during winter, which is when gas supplies are more tight due to residential heating needs, she said.

With the shale production gains, “we have a lot of gas that is going to be there for a long time, and it is going to be cheap for a long time,” Richard Smead, managing director of advisory services at consulting firm RBN Energy LLC, said.

The challenge for the generators and the pipelines is to try and match the pipeline nomination schedule with the generation dispatching process, which can be difficult when pipelines have customers that cannot be “bumped” to meet the supply needs of generators, said Smead, who has decades of experience in the gas industry.

At gas and electric utility DTE Energy in Michigan, which bought two gas-fired peaking plants in 2015, a reconfiguration of its generation fleet toward more gas-fired generation is well underway, Don Stanczak, vice president of regulatory affairs at the utility, said.

Gas-fired generation currently accounts for about 15% of the DTE Energy fleet, with a projection to reach close to 40% by 2024 or 2025, which “will change the way we operate our gas transmission and distribution system,” Stanczak said.

Gas-fired plants currently are mainly used as peaking facilities at DTE Energy, but their growth to more of a baseload resource will change power and gas system operations, he said.

DTE Energy is fortunate in that it has about 140 Bcf of gas storage capacity, which is nearly half of its “utility send-out” needs, and that storage capacity provides flexibility in meeting generation and utility customer needs, Stanczak noted.

At MISO, one impediment on improved coordination among the gas and power industries is the lack of transparency on the fuel assurance information from generators, because that information is market-sensitive, Bloodworth said. MISO is responsible for power grid reliability, but when it cannot see the fuel supply plans of generators, it is a concern, she said.

“We want to learn from New England and New York,” as they address such fuel assurance issues so that when MISO calls on gas-fired generators they will have reliable supplies of gas, Bloodworth said.

The retirement of fossil fuel and nuclear generation assets in New York and New England is something that state regulators have to take into account, and the “pay for performance” addition to the capacity markets in those regions should help, Moeller noted. Ultimately, “the generators have to prove that they will show up when they are needed,” he said.

Burman commended NAESB, along with FERC, for bringing the gas and power coordination issues to the national level and noted that FERC Order 809, issued in April 2015, addressed the generator scheduling and pipeline nomination practices stemming from increased use of gas-fired generation.

There has been coordination among the industries, but there is room for improvement as the different markets address issues specific to their regions, Smead asserted.

Moeller agreed, adding that “if we keep the momentum going, I think we’ll be okay.”

He included a caveat, however, in that if electricity use picks up rapidly after years of essentially flat usage patterns for the nation as a whole, it could exacerbate the need to improve coordination.

Moeller believes that power and gas industry convergence will continue, but the timing may be a question.

“I hope it is a calm evolution and I hope it won’t take a crisis” like the polar vortex of 2014 or the power outages in the Southwest in 2011 that prompted some of the work done to date, Moeller said.