UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION

Transcription

1 UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Commissioner Philip D. Moeller s Inquiry ) Into the Trading of Natural Gas, and the ) Docket No. AD Proposal to Establish an Electronic ) Information and Trading Platform ) POST-CONFERENCE COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION The Electric Power Supply Association ( EPSA ) 1 respectfully submits these comments in response to the Federal Energy Regulatory Commission s ( FERC or Commission ) September 19, 2014 notice establishing a date for submittal of post-conference comments following the September 18, 2014 conference convened by Commissioner Philip D. Moeller in the above-captioned proceeding. 2 The purpose of the September 18 Conference was to explore the concept of an electronic information and trading platform for natural gas, and discuss the relationship between available gas capacity on pipelines and deliverability to electric generators. EPSA members operate a diverse fleet of power plants and recognize the importance of natural gas as a fuel for electric generation. Electric and gas coordination is essential to many EPSA members as large consumers of natural gas who therefore have a significant interest in robust natural gas supplies and a reliable pipeline delivery network. This is of particular concern for electricity suppliers that operate in competitive wholesale markets. In those markets, power plants do not earn their primary source of revenue unless their plants run, which in part requires that gas-fired plants have reliable access to competitively priced natural gas. Moreover, many EPSA members have significant market positions in both the natural gas 1 EPSA is the national trade association representing leading competitive power suppliers, including generators and marketers. Competitive suppliers, which collectively account for 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities. EPSA seeks to bring the benefits of competition to all power customers. The comments contained in this filing represent the position of EPSA as an organization, but not necessarily the views of any particular member with respect to any issue. 2 Post-Meeting Notice, Commissioner Philip D. Moeller s Inquiry into the Trading of Natural Gas, and the Proposal to Establish an Electronic Information and Trading Platform, Docket No. AD , (issued August 19, 2014) ( August 19 Notice ). 1

2 and electric markets, as both buyers and sellers for each, and thereby are well acquainted with the current regional challenges that both industries face. Commissioner Moeller s conference underscored that certain critical market design elements, tariff rules and operator practices may be creating distortions that affect the efficiency of market operations and reliability. Therefore, the conference raised further awareness of critical matters that need to be addressed by the Commission broadly and by individual ISOs/RTOs under the Commission s oversight in order to facilitate better price formation and settlement in electric markets. To that end, with respect to gas markets, EPSA has been participating in forums supporting the Commission s March 20, 2014 Notice of Proposed Rulemaking ( NOPR or Scheduling NOPR ) 3 to establish the gas day start time and intraday nomination cycles which can be coordinated with improved ISOs/RTOs scheduling. Concurrently, the Commission has opened a proceeding to examine electricity price formation issues, which is critical to ensure that competitive power suppliers are assured of sufficient revenue recovery to make reasonable decisions and obligations that support the reliable production of power. I. COMMENTS On a broad level, the Commission is correctly looking at electricity price formation in the energy markets. By addressing issues such as the creation of and overreliance on uplift; ensuring that offer price caps allow for the purchase of fuel at all times and that those fuel prices be reflected in energy prices; and showing how shortage or scarcity pricing mechanisms are utilized in the market, the appropriate attention is being paid to sending the right signals through the right energy prices. This is important to all generators, but particularly critical for gas-fired generation as they continue to make arrangements for reliable operation and market participation. 3 Coordination of the Scheduling Processes of Interstate Natural Gas Pipelines and Public Utilities, 146 FERC 61,201, Docket No. RM , at PP 52-53, (issued March 20, 2014) ( Scheduling NOPR ). ( Under our proposal, gas-fired generators would have the option of arranging natural gas supply and transportation at the Timely Nomination Cycle knowing the results of the day-ahead electric market. In particular, this would forward the objective of minimizing situations in which gas-fired generators, particularly those that opt to procure natural gas supply and transportation after the day-ahead electric market results are posted, are unable to procure sufficient resources to fulfill their electric market commitments and to contribute to reliable system operation. Furthermore, as discussed above, a gas-fired generator s inability to know whether its bid in the day-ahead market has been selected prior to the deadline for the Timely Nomination Cycle may lead to instances in which gas-fired generators must sell off excess natural gas supply, procure more expensive natural gas supply, de-rate, or burn more expensive fuels. We are concerned that any of these scenarios could result in increased electricity costs and a shift away from the least-cost mix of supply resources as determined by the ISO or RTO s day-ahead dispatch and unit commitment. These circumstances could lead to higher costs being passed on to wholesale customers... ) 2

3 More specific to the coordination of the electric and natural gas systems, FERC has issued the Scheduling NOPR in order to ensure that requirements and obligations for the day ahead electric market are known in time for generators to then make gas supply and transportation arrangements while the natural gas markets are liquid such that generators have options to meet their needs. FERC initiated a NAESB process associated with the Scheduling NOPR, which has been completed with a submission of NAESB standards on September EPSA participated in that process and appreciates that the Commission allowed time for industry dialogue while being clear that action must be forthcoming either through industry consensus at NAESB, or barring that consensus, through potential Commission action as outlined in the Scheduling NOPR proposals. Once the gas day timing issues have been settled, the ISOs/RTOs are directed to develop conforming changes to their Day Ahead scheduling processes as set out in the NOPR. Currently, each ISO/RTO utilizes its own timeline which vary by market and EPSA will work with the ISOs/RTOs and market participants on the complementary changes needed on the power side to ensure there is a process in place so that gas-fired generators gas purchases can be scheduled in the Timely Nomination Cycle so that firm transportation can be utilized. This will require adjustments from each industry. Therefore, EPSA urges each ISO/RTO to work expeditiously on power market timeline changes that will best conform to any changes on the natural gas side in order to address the current inefficiencies of the two markets (natural gas and power). Importantly, and consistent with previous conferences addressing electric and gas coordination and the polar vortex events over the winter of , the September 18 conference reasserted that while the system was stressed this past winter, the electricity and gas supply and delivery system met reliability needs under those extreme conditions. That noted, there are market design and operational issues which require revision in order to ensure system reliability going forward as the nation s resource mix changes. Broadly, for instance, all power markets should have in place intraday scheduling opportunities to allow generators to refresh their supply offers to reflect changing market conditions including as to real-time gas costs. Reflecting actual market conditions, including unexpected fuel price volatility or system 4 The Scheduling NOPR provides time for the natural gas and electric industries to reach consensus that might differ from the NOPR s proposed revisions through the NAESB process. That process must conclude by September 29, 2014 and the NAESB committee established for this effort is the NAESB Gas-Electric Harmonization Forum ( NAESB GEH Forum ). Additional information is available here 3

4 constraints, is necessary to reduce sellers uncertainty regarding adequate compensation when they run and to support ongoing operational and capital investment decisions. Additionally, this intraday or hourly flexibility will benefit the interaction of the gas and electric markets by allowing power offers to accommodate gas price variation between day-ahead and real-time scheduling and delivery times, as well as oil price variation for dual fuel units which were relied upon heavily in several markets this winter. Consistent with a recommendation from Jim Ginnetti, Senior Vice President of EquiPower Resources, Corp., EPSA urges that all ISO/RTOs be required to provide offer flexibility optimally hourly reoffer opportunities -- in order to address short run operational issues, as well as ensuring that market participants have confidence in their ability to recover costs and make investment decisions supporting their generation resources. Additional scheduling flexibility on the gas pipelines may be needed to allow generators to respond to the intraday dispatch instructions from the ISO/RTOs as they are required to do under their tariffs. While natural gas prices across the country remain historically low, this past winter reflected how market prices for gas can escalate when high electric and gas demand coincide. While the electricity energy offer cap issue emerged only this past winter when it became binding, EPSA has serious concerns that certain clear flaws in energy market price formation under current rules and practices are not being addressed expeditiously by ISO/RTO markets, even when market problems experienced this winter highlighted those flaws or where internal or external market monitors have identified such flaws for years. Several of the September 18 conference panelists noted that unnecessary artificial constraints on wholesale electricity markets have serious adverse consequences when flexibility is needed most. As the Commission is well aware, several ISO/RTOs were forced to make emergency waiver filings, seeking waiver of the offer cap contained in their tariffs in order to allow generators to reflect the cost of gas in their bids. To date, none of the ISO/RTOs have submitted filings to the Commission to increase the offer caps going into this winter. If we experience another abnormally cold winter, generators could again face the untenable position of having to purchase gas at prices that exceed the ISO/RTO s bid cap. The Commission should require each ISO/RTO to address this issue prior to the start of the winter season. Another issue of concern experienced this past winter and raised at the September 18 conference is generators having to procure natural gas priced as a package on Friday for the coming three days over the weekend which includes Monday, and sometimes for four days over a holiday weekend. EPSA was encouraged by the comments from panelists representing two exchanges, the CME Group and Intercontinental Exchange (ICE). ICE is, in fact, actively 4

5 working with industry to develop market solutions for weekend gas procurement. ICE is looking at products that would separate Saturday/Sunday from Monday in order to reflect the differences between weekend and weekday demand and price conditions. While EPSA supports retention of the current ICE products, it has also been working with ICE on the development of alternative products in order to overcome impediments and facilitate greater flexibility for gas procurement for weekend days. As to the discussion regarding the trading platform proposed by Don Sipe, that conversation raised more questions than it answered. While the concept was discussed, the need for the trading platform and how it would work with existing structures is not sufficiently developed in order to allow gas and electric market participants to evaluate the need and implementation of such a concept. Consequently, at this point EPSA believes the concept needs better definition and a demonstration that the concept will, in fact, benefit both the gas and electric industries before it can be further discussed by those who might consider its use as a customer or a seller. As such, we look forward to working with FERC on its continuing efforts in the above-referenced proceedings to develop solutions to the market inefficiencies discussed during the September 18 Conference. II. CONCLUSION WHEREFORE, EPSA submits these comments regarding the September 18 Conference for the Commission s consideration. Respectfully submitted, Nancy E. Bagot, Vice President, Regulatory Affairs Jack Cashin, Director, Regulatory Affairs Electric Power Supply Association 1401 New York Avenue, NW, 12 th Floor Washington, DC (202) NancyB@epsa.org 5