Energy Markets Make Strange Bedfellows - Gas and Electric Coordination

The Federal Energy Regulatory Commission's (FERC) effort to bolster capacity performance and natural gas and electric coordination has been strengthened by a recent win in court and continuing stakeholder coordination. Last week, the D.C. Circuit Court of Appeals upheld FERC's approval of new electricity market rules -- capacity performance -- for PJM's 13-state region, which, some argue, will advantage natural gas-fired power generators over demand response, wind and solar resources. And yesterday, the FERC continued its emphasis on gas and electric coordination, hosting a technical conference to ensure that as the growth of natural gas continues in electricity generation, reliability problems will not be the result of a lack of coordination between the two industries. What changes can you expect to see in the electric industry?

Court Maintains Capacity Performance

PJM's implementation of capacity performance is largely a reaction to a blackout scare in January 2014, when the polar vortex dipped unusually low across the northern U.S., creating record-low temperatures. During that time, up to 22% of PJM's fleet failed to operate when dispatched, despite being contracted through the capacity market. Capacity performance rules introduced year-round requirements, broken into winter and summer seasonal markets, to replace the summer-peaking-only market. The D.C. Circuit's unanimous decision rejected challenges by many environmental groups that have been at the center of pipeline permitting feuds, such as the Sierra Club and the Natural Resources Defense Council, as well as several unlikely industry partners.


What's next? Well, the FERC, for one, believes that the rules will encourage resource owners to invest in capital projects to ensure reliability, which will hopefully help to avoid high peak energy prices and system outages. Given the number and complexity of the issues involved, expect environmental groups to find an angle to reexamine one or more issues, which they may do by filing a new complaint with FERC. If this occurs, FERC will have yet another issue to add to its very full plate when a quorum is reconstituted, which may happen soon, given the Administration's nomination this week of a Democrat, Richard Glick.

Receipts of Fuels for Electricity Generation

Natural Gas - Electric Coordination

With energy market conditions shifting dramatically, legal entanglements related to policy initiatives, such as those regarding capacity performance, have become more common. As such coordination between FERC and grid operators is central, it must also involve industry stakeholders that are interdependent. Yesterday's technical conference at FERC was in response to an effort to investigate the coordination between the natural gas and electricity industries. As natural gas generation is used more heavily in electricity generation, the FERC is concerned that outages and reliability issues will not result from a lack of coordination, because, within each day, electricity trading differs significantly from gas trading.

There have been various efforts among governing bodies, such as the RTOs, ISOs and NERC, in the electric industry to improve reliability, security and flexibility of infrastructure. The FERC's effort to coordinate the natural gas and electric industries can be counted among these efforts. These actions have been in response to the introduction of renewable energy resources and the increased electric demand among consumers. From 2005 to 2015, the quantity of natural gas used in electric power production nearly doubled, while the price decreased by 60%. This change was made possible, in part, by existing interstate pipeline infrastructure, but it also inspired the construction of additional facilities and, more specifically, many laterals to generators, utilities and industrials.

In response to these changing market conditions, LawIQ's next foray will be in regulatory data analytics involving the electricity industry, aiming to keep you informed about just these questions. By accessing state-wide regulatory filings, our customers will soon be able to analyze not only the macro impacts of new power being connected to the grid, but also the micro impacts of electric transmission and distribution line permitting risks.

Cost of Fuels for Electricity Generation