Gas / Electric Harmonization

Since the beginning of the 21st century, the fuels that power the nation’s electric grid have undergone a massive evolution that continues today. Fuel economics and federal environmental public policy are the primary drivers of the nation’s move to renewable energies and natural gas-fired power plants.

The chart below illustrates how far off analysts were in forecasting the continuation of coal as the U.S.’ primary electric fuel source. Although gas-fired generators are presumed to be coal’s heir apparent as the mainstay of baseload generation – some stumbling blocks make a transition from coal to natural gas far more complicated than it might seem at first blush.

Those stumbling blocks can be sorted into several categories:

  1. Physics: Electricity moves at roughly the speed of light. Natural gas flows at 18 miles an hour.
  2. Pricing: Cost for firm service requires a generator to pay for pipeline capacity that can’t be used a majority of the time. Competitive bidding into Regional Transmission Organizations (RTO) drives down the cost of electricity to marginal costs, so fixed transportation costs are not recoverable.
  3. Mechanics: The electric grid is fully automated and capable of instantaneous adjustments to facilitate the perfect balance required between load and generation. Many gas pipeline procedures are still manual, to the point that changing a flow in the middle of the night could require a worker to drive to a remote location and turn a valve by hand.
  4. Scheduling: Gas capacity is reserved in five daily nomination cycles (three same-day and two day-ahead). Electric capacity can be scheduled in five-minute increments.
  5. Markets: The gas trading day begins at 9 a.m. Central Time. The power trading day begins at midnight in the time zone in which a transaction originates.
  6. Business models: Natural gas pipeline entities require new pipeline capacity to be fully subscribed before they will begin construction. For a gas-fired electric generator, this means pipeline capacity must be reserved to power a generating station at 100 percent capacity every hour of every day of the year. No generating station operates at that rate, and the value of the unneeded capacity totals in the millions every year. Although it’s easy to understand why the natural gas industry would prefer to assume no risk associated with its capital investments, AEP finds it an unacceptable solution to expect end-use electric consumers to absorb all of that risk.

What Has Changed So Far

Order 787, Communication: On Nov. 15, 2013, the Federal Energy Regulatory Commission issued Order 787, which revised FERC’s regulations to provide explicit authority to interstate natural gas pipelines and public utilities that own, operate or control facilities used for the transmission of electric energy in interstate commerce to share non-public operational information with each other for the purpose of promoting reliable service or operational planning on either the public utilities’ or the pipelines’ system.

Order 809, Scheduling: After much industry input, the FERC added one same-day nomination cycle, but did not change the start of the gas day to align with the start of the power day. Subsequently, the FERC required all RTOs and ISOs to explain why they would be unable to schedule which generating units will be running the following day until after the evening nomination cycle has passed, making it difficult for generator owners to plan their fuel needs. They have also called upon the gas industry to explain why it cannot automate more of its scheduling systems, easing the pressure the industry suffers when nom cycles are too close together.

AEP position

The gas and electric industries did not develop in the same manner. Their presumptions, physical procedures, and business protocols do not mesh. This is not the fault of either industry; it is simply the byproduct of an infrastructure built for different needs. That said; if we do not resolve the differences that prevent a smooth integration, we risk the reliability of the nation’s electric grid. With it we risk our economy, quality of life, and national security.

FERC should also establish deadlines for achieving pre-determined goals toward harmonization that will keep the industries on pace to accommodate the imminent increase in the use of natural gas as an electric fuel source.

AEP advocates the implementation of hourly gas nomination cycles, which provide scheduling flexibility the electric industry needs.