Type: Client Alerts
On April 16, 2015, the Federal Energy Regulatory Commission (FERC) issued a much-anticipated final rule modifying some of the scheduling practices used by interstate natural gas pipelines to better coordinate the scheduling of the wholesale natural gas and electricity markets (Order No. 809 or Final Rule).1 The Final Rule follows an extensive stakeholder process held by the North American Energy Standards Board (NAESB) involving the gas and electric industries, and multiple FERC technical conferences.
The core elements of Order No. 809 include:
- Changing the nationwide Timely Nomination Cycle nomination deadline for scheduling natural gas transportation from 11:30 a.m. Central Clock Time (CCT) to 1:00 p.m. CCT
- Adding an additional, third, intraday scheduling opportunity during the natural gas operating day (Gas Day) starting at 7:00 p.m. CCT
- Providing additional contracting flexibility to firm natural gas transportation customers through the use of multi-party transportation contracts
Order No. 809 will become effective 75 days after its publication in the Federal Register. With respect to the revised NAESB scheduling changes, FERC provided interstate pipelines until February 1, 2016, to file tariff records to reflect the changes. However, pipelines are required to comply with the revised NAESB standards beginning April 1, 2016.
In the Final Rule, FERC retreated from certain changes it proposed in its April 1, 2014, Notice of Proposed Rulemaking (NOPR), which initiated this proceeding. Notably, FERC did not implement its proposal to change the start of the Gas Day to better align it with the electric operating day. Based on the response of the electric and natural gas industries to this proposal, FERC determined that the record did not establish that the benefits of such a change outweighed the costs. FERC noted that ISO-NE and PJM – two of the regions of most concern – have recently undertaken operational and market actions to address generator availability and performance, and that all of the ISOs and RTOs are considering changes to better align their markets with the Gas Day (discussed further below).
In addition, FERC declined to fully implement its proposal to add two new intraday nomination cycles, instead opting to add one new intraday cycle in accordance with NAESB’s proposal and the preference of the majority of commenters. A new “no-bump” intraday cycle will start at 7:00 p.m. CCT, two hours later than the current “no-bump” second intraday cycle, which will be moved up to 2:30 p.m. CCT and which will be “bumpable.”
The New Nomination Schedule Order No. 809 essentially incorporates the results of a stakeholder process held by NAESB last year. The new scheduling deadlines, set out in the Appendix to Order No. 809, are as follows:
Multi-Party Transportation Contracts In its NOPR, FERC (i) proposed to require pipelines to offer multi-party service agreements for firm service (outside of their capacity release programs) and (ii) sought comments as to whether it should also require pipelines to offer multi-party service agreements for interruptible transportation service.
Ultimately, in the Final Rule, FERC decided that, rather than requiring all interstate pipelines to modify their tariffs to offer multi-party firm transportation contacts, a pipeline would only be required to do so if such an option were requested by a shipper. Consistent with FERC’s past policies, shippers utilizing multi-party firm transportation contracts will generally be required to be jointly and severally liable under the contract to avoid violating the shipper-must-have-title rule. Unlike the revised nomination schedule, this aspect of Order No. 809 will go into effect once Order No. 809 becomes effective.
FERC also decided that pipelines will not be required to provide multi-party service contracts for interruptible transportation. FERC determined that, unlike firm shippers, interruptible shippers do not have any obligation to pay a monthly reservation charge and only pay transportation charges when they utilize the service. Therefore, there is no existing financial impediment to generators or others entering into interruptible transportation contracts. In addition, unlike multi-party contracts for firm service, an interruptible multi-party transportation contract would not provide generators with any additional ability to offset the costs of holding an interruptible contract.
What’s Next? Although the Final Rule makes significant changes to gas scheduling and contracting practices, it is equally noteworthy for what FERC did not do: change the 9:00 a.m. CCT start of the Gas Day. In declining to change the start of the Gas Day, FERC shifted the focus back to the electric industry (and, specifically, to the ISOs and RTOs), to make any scheduling changes to better facilitate alignment with the gas industry.
FERC has already begun that process. Concurrent with the initiation of the NOPR for Order No. 809, FERC also instituted proceedings under section 206 of the Federal Power Act to ensure that ISO and RTO scheduling practices – particularly day-ahead scheduling practices – could be modified to correlate with the revisions to the natural gas scheduling practices ultimately adopted by FERC.2
Wholesale electricity markets operated by the ISOs and RTOs also use a day-ahead energy market to set contractual commitments for the next operating day. Market participants place day-ahead offers and bids to sell and purchase, and these participants must make such commitments prior to the close of the market. If the market clearing process accepts these commitments, they become binding for the following day. As shown below, all ISOs and RTOs (with the exception of NYISO) publicize accepted day-ahead dispatch bids after the current 11:30 a.m. CCT nomination deadline for the Timely Nomination Cycle.
In the Section 206 Order, FERC required each ISO and RTO within 90 days of the publication of a final rule in the Order No. 809 proceeding to: (i) make a filing that proposes tariff changes to adjust the time at which the results of its day-ahead energy market and reliability unit commitment process (or equivalent) are posted, to a time that is sufficiently in advance of the Timely and Evening Nomination Cycles, respectively, to allow gas-fired generators to procure natural gas supply and pipeline transportation capacity to serve their obligations, or (ii) show cause why such changes are not necessary.3 Order No. 809 reiterates that requirement.
Finally, it should be noted that at the April 16, 2015, FERC meeting, in which the FERC Commissioners voted out Order No. 809, new FERC Chairman Norman Bay suggested that more progress can be achieved, and encouraged the gas and electric industries to continue to work together to explore mechanisms that would enhance overall system reliability for both industries. Chairman Bay noted that it may be possible that computerized scheduling could reduce pipeline processing times and allow pipelines to offer more intraday scheduling opportunities – a subject FERC in Order No. 809 requested that the industries, through NAESB, explore going forward. Chairman Bay also encouraged the industries to explore market-based solutions, products, or services that could be developed to address different regional concerns.
- Coordination of the Scheduling Processes of Interstate Natural Gas Pipelines and Public Utilities, Order No. 809, 151 FERC ¶ 61,049 (April 16, 2015) (Order No. 809).
- California Independent System Operator Corp., et al., Order Initiating Investigation into ISO/RTO Scheduling Practices and establishing paper hearing procedures, 146 FERC ¶ 61,202 (2014) (Section 206 Order). In another concurrent order, FERC instituted proceedings, under section 5 of the Natural Gas Act, to examine whether interstate natural gas pipelines were providing notice of offers to purchase released pipeline capacity in accordance with FERC’s regulations. Posting of Offers to Purchase Capacity, 146 FERC ¶ 61,203 (2014).
- For non-ISO and RTO systems, FERC’s section 13.8 of the pro forma OATT specifies that firm interchange schedules need to be submitted by 10:00 a.m. day-ahead or a reasonable time that is generally accepted in the region and is consistently adhered to by the Transmission Provider. Schedules for Non-Firm Point-To-Point Transmission Service must be submitted to the Transmission Provider no later than 2:00 p.m. of the day prior to commencement of such service under section 14.6 of the pro forma OATT.
Client Alert 2015-101