FERC's Market-Power Test:
Why a new market-power screen-accounting for the relationship between customers and suppliers in the wholesale...
The industry has moved beyond the debate.
Ron Hrehor's and Don Sytsma's Feb. 15, 2002 vision in this magazine ("Gas Power Infrastructure: The Missing Link?", p. 32) of natural gas industry potential to address electric industry problems, notes in passing that interstate pipelines are advancing more flexible services for generators, including services that now offer firm hourly transportation. 1 But, there is more to that story. Putting flesh on the gas-power vision, pipeline efforts to formulate services for generators, and FERC orders governing those efforts now assume a discernible shape. This is a reasonable time to take stock.
A Fuel with Electrifying Prospects
The ongoing Enron scandal and the 2000-2001 California electricity crisis are causing financing and regulatory uncertainty today for gas-fueled generation and other energy markets. 2
Despite those phenomena, the Energy Information Administration (EIA) predicts that the less capital-intensive and more efficient generation of electricity from gas, including cogeneration, will double from 16 percent in 2000 (52 percent coal, 20 percent nuclear, 9 percent renewable) to a projected 32 percent in 2020 (46 percent coal, 13 percent nuclear, 8 percent renewable). 3 EIA also projects 355 gW of new electricity generating capability, excluding cogeneration, consisting of 88 percent gas, in combined-cycle or combustion turbines and distributed peak generation, over the same 20 year period. 4 Electric issues of generator interconnection, transmission and regional transmission organization (RTO) formation-structure-governance will be influenced, and likely heavily so, by locating, sizing, pricing, and operating via gas fuel that 88 percent of new electricity generating capability. Where such electric issues are subject to competing federal/state interests, only FERC regulates interstate delivery of gas.
In the near term, FERC's Order No. 637 anticipates greater integration of gas transportation and electric generation markets, with gas usage for power generation expected to grow substantially. 5 Order No. 637 fosters that integration by: (1) insisting on capacity segmentation to increase value and on better management of capacity imbalances; (2) minimizing pipeline operational flow orders and providing for penalties to customers only where operational reliability is impaired; (3) promoting new approaches to capacity pricing through term-differentiated (lower rates for longer terms) and peak/off-peak rates; and (4) experimenting with capacity releases of less than a year.
New Services that Work for Generation
Hrehor and Sytsma see pipeline system physical assets, and pipeline regulatory, commercial and operational aspects, as helping to develop new generation in power-constrained locations. 6 In the past two years, pipelines have put in place transportation services to attract the business of electric generators, using available pipeline capacity not already subscribed.
On the Texas Gas Transmission Corporation system, 7 the pipeline demonstrates sufficient unsubscribed capacity and other available capacity from turnbacks by existing customers to support a new electric generation service with pipeline and off-peak storage capacity. FERC praises Texas Gas's resolution of competition for capacity at particular points by evaluating bids on a highest net present value basis, awarding capacity to those valuing it most highly. For ANR Pipeline Company, FERC approves firm (FT) and interruptible (IT) transportation services customized for electric generation that will not degrade