A deep Arctic freeze socks in the Northeast, and every home’s furnace is working overtime. The surge of natural gas use for furnaces means power plants can’t get enough fuel. Power fails, and furnaces can’t start. Gas pipeline compressors lose power, and natural gas flow stops.
That’s the nightmare scenario both regulators and industry are struggling to avoid, as the electric and gas industries quickly become more interdependent.
But no one is finding easy answers.
The issue is particularly acute in the Northeast, where gas pipelines from the South have gone empty in cold winters past. In 2011, more than 50% of New England’s electricity and more than a third of New York and New Jersey’s power came from gas. More than half the homes in the Northeastern US heat with natural gas, according to the US Energy Information Administration.
The Federal Energy Regulatory Commission (FERC) spent August holding five regional conferences, where commissioners discussed local situations directly with electric grid operators, utilities, power generators, natural gas pipeline operators and gas producers and distributors.
“There’s no crisis now,” said FERC Commissioner Philip Moeller, citing last year’s unusually warm winter, “but there is clearly a challenge down the road” as coal plants nationwide are being replaced with gas-fired generation.
“There is an electric problem,” agreed FERC Commissioner John Norris. “We have to make sure there is a consistent fuel supply to meet electricity needs.”
FERC is responsible for electricity reliability and oversees of the interstate markets in both natural gas and electricity. Those markets have developed separately, with different practices including different trading days, but FERC sets their frameworks.
The Intersection of Business and Regulation
One key issue is delivery terms. Because pipeline operators charge a premium for firm delivery, many gas-fired generators, even at the ends of the pipelines in New England, are “interruptible” customers. If higher-paying customers like local gas retailers get more demand from household furnaces, generators don’t get the fuel and power grid operators must seek other, more costly electricity sources. FERC could require gas generators to become firm customers, but that would be expensive and encounter resistance in less gas-dependent regions.
Marguerite Mills, Vice President, American Electric Power, told FERC, “We’ve made it work up to now, but we are retiring 6,000 MW of coal in the next few years.” Nearby shale gas discoveries will help only if pipelines get built to bring the fuel to new generators, she noted.
Gary Sypolt, Executive Vice President/CEO, Dominion Energy, said pipelines are being built in the Marcellus and other shales because producers pay for the infrastructure to take their natural gas to trading hubs. Neither producers nor pipeline companies will pay for pipes to take the gas to generators, he stressed.
We have to make sure there is a consistent fuel supply to meet electricity needs.” – Norris
Richard Kruse, Vice President of pipeline operator Spectra, said new pipelines will be built only where gas prices are high enough to warrant it.
Robert Hayes, Vice President, Calpine Corp., said his company is already in talks with both pipelines and producers about ways to get new infrastructure to generators.
Richard Smead of Americas Natural Gas Alliance said many producers recognize a leap may need to be made from the way gas has been supplied, and Kevin Telford of Exelon said his company is being approached by entrepreneurs who have natural gas and want to “plug in a power plant.”
John Moura, Associate Director, Reliability Assessment, North American Electric Reliability Corp. (NERC), suggested one approach could be to factor gas delivery terms into NERC’s semi-annual reliability assessments. Those assessments only count a small percentage of variable resources, for instance, because wind and solar have low capacity factors and can’t operate on demand. He suggested NERC might similarly discount capacity with non-firm gas supplies in its winter reserve margin assessments.
Michael Kormos, Senior Vice President of grid operator PJM Interconnection, said PJM’s capacity market auctions do not distinguish between gas generation bid in with interruptible supply or firm, so the grid operator could develop a way to weight the difference, perhaps by capping interruptible supply.
FERC Commissioners said they’ll wait for staff recommendations before deciding whether market changes are warranted.