March 26, 2014 / 2:10 PM / in 4 years

COLUMN-FERC orders gas and power suppliers to work together: Kemp

(John Kemp is a Reuters market analyst. The views expressed are his own)

By John Kemp

LONDON, March 26 (Reuters) - Disruptions to natural gas supplies pose an increasing risk to the reliability of the power system in the United States as gas replaces coal and nuclear as the main source of electricity generation.

“Reliance on natural gas as a fuel for electric generation has increased in recent years, resulting in greater interdependence between the natural gas and electric industries,” the Federal Energy Regulatory Commission (FERC) said in a proposed new rule issued on March 20.

By 2015, gas-fired power plants are expected to supply half of peak electricity demand. Ensuring that the gas and electricity industries work together smoothly is becoming critical.

But the number of power plants unavailable to generate because they cannot get enough gas has been growing since the turn of the century, according to an analysis performed by the North American Electric Reliability Corporation (NERC).

Gas-fired generating units were declared unavailable on 292 occasions in 2010 owing to lack of fuel, up from 13 instances in 2001. More than 30 gigawatts of generating capacity was lost in 2011, a 30-fold rise since 2001, according to NERC (“Accommodating an increased dependence on natural gas for electric power” May 2013).

The problem is a shortage of pipeline capacity to certain areas rather than any shortage of the gas itself.

Forced outages have lasted from as little as five hours to almost two days. In most instances, grid operators have been able to avoid power failures by switching to other plants.

But hurricanes, lightning strikes on gas compressors, burst gas pipelines and extreme cold have all caused serious interruptions to electricity supplies in the last 25 years.

The worst problems occur in winter, when electric generators compete with residential and industrial users for scarce capacity on U.S. gas pipelines.


Texas could lose up to 24 percent of its gas-fired generation if the extreme cold experienced in December 1983 is repeated, according to a report prepared for the Electric Reliability Council of Texas (“Gas Curtailment Risk Study” March 2012).

In February 2011, bitter cold and high winds caused rolling blackouts across the U.S. Southwest. More than 250 generators were declared unavailable. Most outages were directly related to the weather. But at least 15 percent were caused because power plants could not get enough gas.

In January 2014, arctic temperatures across the Midwest, Northeast, Mid-Atlantic and Southeast again strained gas and electricity supplies to the limit.

Texas appealed for power conservation and came close to ordering rotating blackouts as spare generating capacity available to meet demand dropped to less than 2,000 megawatts (2 percent).

In February 2014, extreme cold limited the availability of natural gas supplies to New Mexico and California, forcing the California grid to issue a system alert and ask customers to reduce their power consumption.

Federal regulators have grown sufficiently alarmed that they have ordered the gas and electricity industries to coordinate more closely.

A series of workshops have been held and studies published over the last two years on the growing interdependence between gas and electricity supplies. Following the gas and electricity shortages this winter, the pace of regulatory activity has stepped up.

On March 20, FERC set a six-month deadline for the gas and electric industries to come up with new shipping and dispatch timetables “to better coordinate the scheduling of natural gas and electricity markets in light of increased reliance on natural gas for electric generation”.


The changes FERC is proposing are relatively minor and technical. But they point to broader operational differences between the two industries, which are becoming more problematic as power supplies rely more heavily on gas.

Historically, most conventional gas-fired power stations have operated on average only 25 percent of the time, with peaking plants operating less than 5 percent of the time.

For that reason, most gas-fired power plants negotiated interruptible supply contracts with gas pipeline companies because they were cheaper.

But many conventional gas-fired power stations are now operating as much as 50 or even 60 percent of the time as baseload and daily load-following plants.

The old interruptible supply contracts are no longer appropriate, but firm supply contracts are far more expensive.

In most states, pipeline companies are required to prioritise gas deliveries to what the regulators term as “human needs” customers such as residences, hospitals and nursing homes.

As a result, during periods of extreme cold, supplies may be cut to power producers, threatening their ability to keep the lights on.

The gas supply business is oriented to the long term and to regular deliveries. Gas companies usually obtain long-term contracts for most of their capacity, and in most cases they must do so to get the regulatory approval for construction of a pipeline in the first place.

By contrast, the fundamental principle in the electric industry is reliability. To ensure the lights never go out, power generators maintain a large amount of spare generation and transmission capacity.

The electric industry’s need for spare capacity is not easy to square with the gas industry’s need for firm committed customers.

“Differences in the structures of the two industries can result in a mismatch between the availability of gas delivery services and gas demand for electricity generation,” NERC says.


As a first step, FERC is trying to align the planning schedules of the gas and electricity industries to ensure a smooth flow of gas to power stations when the electricity grid comes under pressure.

“Differences between the nationwide natural gas scheduling timeline and the regional electric scheduling timelines can create complications,” according to FERC.

At the moment, the gas industry schedules the provision of supplies to customers based around a “gas day”, which starts at a uniform time across the United States called 0900 Central Clock Time (CCT).

CCT refers to the time on clocks in the Central Time Zone, whether it is Central Standard Time or Daylight Savings Time.

Most gas supplies are fixed at 1130 CCT the previous day, and there are limited opportunities to modify the schedule at 1800, as well as at 1000 and 1700 on the day itself.

By contrast, the operating procedure for scheduling electricity flows varies by region, and in most areas the “electricity day” starts at midnight local time.

For the most part, power producers complete their planning by 1800 local time on the day before, at which point they are committed to deliver a specified amount of power to the grid at specified times.

In practice, power producers must contract gas pipeline capacity at 1130 for next-day delivery, even though they do not know for certain that they will be operating the next day until 1800 - leaving a gap of around six hours between the two schedules.

Alternatively, they can leave the booking of pipeline capacity until the day itself, by which time they will know they need it, but run the risk there will be no space available. The availability of intra-day pipeline capacity is severely limited, according to NERC.

FERC, therefore, wants to adjust the gas cycle to narrow the gap and give more flexibility to power producers so they can respond to changes in the weather and other unexpected events.

The start of the gas day would be brought forward to 0400 CCT, so it begins just before the early morning peak in power demand.

The main gas nomination time would be pushed back from 1130 to 1300 CCT on the day ahead, so power producers can fix their needs later and closer to the time at which they know for certain whether they will be running.

Finally, power producers would be given more opportunities to make last-minute adjustments to their gas deliveries in response to unexpected changes in demand. Instead of two opportunities to make intra-day changes (at 1000 and 1700), there would be four (0800, 1030, 1600 and 1900).

Extra intra-day nomination cycles at 0800 and 1600 would enable gas-fired power producers to ramp up in time for the morning and evening peaks during periods of extreme cold, especially if other generation assets are unexpectedly unavailable.

FERC’s proposed rule is only a small first step. More regulations are set to follow as the government and industry figure out how to keep the lights on and gas flowing during cold weather events. (editing by Jane Baird)

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