posted on Monday, November 20, 2006 8:59 AM by Tracy Davis

Industry and Regulators Aim to Synchronize Natural Gas Supply and Power Markets

During a northeastern cold spell in January 2004, natural gas-fired electric generators had significant problems obtaining adequate fuel supplies in time to participate in the ISO New England market and provide emergency power.  This experience caused the industry and its regulators to question whether the ISO/RTO scheduling and market-clearing practices are compatible with the scheduling of natural gas purchases and transportation. 

The North American Energy Standards Board (NAESB) established a Gas-Electric Coordination Task Force to look at the problem.  The Task Force identified several features of ISO/RTO tariffs that discouraged gas-fired generators from participating in ISO/RTO markets during periods of heightened demand or supply interruptions.  At the top of the list were discrepancies between gas nomination timelines and ISO/RTO market clearing timelines.  For example, a generator may submit an offer to sell into an ISO/RTO organized market based on prevailing natural gas prices, but by the time the ISO or RTO accepts the offer and clears the market, during extreme conditions, gas prices may have increased dramatically.  ISO/RTO market rules generally do not provide the flexibility for a generator to increase its offer price in response to the increased natural gas price.  Exposure to that risk can cause a gas-fired generator to refrain form offering its output at all during periods of heightened demand when that generation is needed most.  In an attempt to avoid these disincentives, and to increase coordination between the gas and electric markets, FERC recently directed each ISO or RTO by January 16, 2007, either to propose revisions to its offering and market clearing deadlines or to explain why such revisions are not needed.

One of the NAESB Task Force's reports also included recommended standards for natural gas transmission service providers' communications with electric power generators and independent transmission system operators.  Noting that improved communication would help address, but would not completely resolve, the coordination difficulties, FERC proposed to adopt these communication standards into its regulations in a recent notice of proposed rulemaking, on which public comments are due December 18, 2006.