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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 firm primary capacity rights.⁸

Other new services target summer capacity. Orders for Gulf South Pipeline Company⁹ approve the use of unsubscribed no-notice service (NNS) as a summer option for electric generation. In 1992, pipeline acknowledgements that NNS in fact could be done (replacing the FT component of bundled firm sales with stand-alone, enhanced firm service without daily penalty) helped make open access policy acceptable to FERC.¹⁰ However, NNS's star may no longer be in the ascendant. Even were Gulf South NNS customers to take all their maximum daily quantities (MDQ) during any hour-a scenario the pipeline views as never contemplated, physically impossible, and degrading to other firm services-FERC concludes Gulf South unsubscribed NNS capacity is sufficient to support the new electric generation service. FERC also approves a Natural Gas Pipeline Company of America (Natural) counter-cyclical service to meet summer generation load with off-peak no-notice storage.¹¹ With storage and transportation separately releasable, the pipeline manages storage and cushion gas to provide daily reversed storage (summer withdrawals, winter injections) and reserves capacity for existing firm commitments. FERC finds no reason to believe the pipeline would act imprudently, such as by overselling a delivery zone.

Ascertaining Existing Customer Capacity Limits

Aware that pipelines historically are designed to supply gas to customers (primarily residential) at constant rates of flow, Hrehor and Sytsma propose a "joining" of gas and electric markets to achieve lowest delivered energy costs to both gas and power consumers through a consistent "regulatory framework and jurisdiction", i.e., "proceedings at FERC."¹² In orders for Panhandle Eastern Pipeline Company,¹³ FERC emphasizes that FT for electric generation may complement other firm service capacity use, rejecting as speculative existing customer concern that their services will be degraded. The pipeline allocates no specific capacity to the electric generation FT, and FERC accepts its assurance of case-by-case evaluation to avoid adverse impact on other firm users. In the Gulf South orders, relying on earlier analysis for Transwestern Pipeline Company,¹⁴ FERC finds rights of existing capacity holders are not diminished unduly by offering available, unsubscribed capacity to generators. Such existing holders, FERC explains, have no right to expect unsubscribed capacity to be maintained in order to minimize the possible effects of a curtailment. With no specific capacity allocated to new summer service, and accepting Gulf South's assurances that each request for service will be evaluated for unsubscribed capacity available, FERC finds no effect on the pipeline's ability to make all firm deliveries (however, summer IT capacity may be limited). FERC's orders for Natural declare that existing customers cannot claim the system's entire capacity, above their contract limits. Such claims would restrict the pipeline's ability to grow efficiently, confining the addition of new customers to a proposed sharing of the cost of service, if and when new rate cases are filed.

There are limits to the favor electric generation enjoys. In Colorado Interstate Gas Company orders,¹⁵ FERC states that pipelines must improve their flexibility to serve electric generation load, while also protecting existing firm shippers' services. FERC says operational constraints may be necessary to protect those incumbent services. Also, in another series of ANR orders,¹⁶ FERC concludes the pipeline cannot resell other subscribed, but unnominated and unscheduled, firm capacity to implement a limited firm service to an electric generator. FERC says a new, limited FT service must not degrade existing firm services, and refuses to allow the pipeline to collect double reservation charges for the same capacity. Finally, Tennessee Gas Pipeline Company proposed a new electric generation service, stating that current daily transportation quantities of existing services carry the general expectation that those shippers receive scheduled volumes at uniform hourly flow over the gas day.¹⁷ Over protests that such an expectation threatens existing customer FT flexibility at hourly-equivalent levels above MDQ, the pipeline withdrew its generation service tariffs.

Efficient Service to Burgeoning Electric Generation Loads

Hrehor and Sytsma point to the "frequent and fairly rapid changes in gas flow" required by generators, and comment that gas and electric markets often are geographically identical, and conclude power customers might use the gas pipeline infrastructure to "enable the strategic placement of new generation" to reduce transmission constraints.¹⁸ While responsive to the operational requirements of the particular systems, several new pipeline services enable generators to react more promptly to spiking electric demand. The new Panhandle Eastern service accommodates generators through daily FT with the enhanced flexibility of accelerated flow rates for shorter time periods on shorter notice. Shippers notify the pipeline three hours before delivery and may take, within certain time periods, up to their MDQ in designated hourly increments from one to 16 hours. Nominated and scheduled daily, the service is balanced monthly. Only connected electronic flow measurement points are served, with the service restricted to one shipper contract at a delivery point, since multiple contract flows are not distinguished. Other orders, for Reliant Energy Gas Transmission Company,¹⁹ approve shipper nominations at any time, effective at the start of the hour if made 60 minutes earlier. The pipeline posts scheduled quantities on the Internet prior to gas flow as an Order No. 637 tool for customers to manage imbalances and avoid penalties. Gas Industry Standards Board (GISB) restrictions on FT bumping of IT are waived to implement hourly firm nominations, except IT shippers are not bumped either after 5 p.m. on gas flow day or if bumping outside GISB grid-wide synchronization times affects transactions on other pipelines. ANR provides another fast service, with variable hourly flow rights enabling the customer to swing the entire daily entitlement in as few as four hours. The service commences and shuts down on short notice, flexibly allowing users to manage their receipt and delivery variances.

CIG service for hourly entitlement enhancement nominations flexibly provides defined hourly transportation rights. By meeting operational requirements (such as the gas passing two or more specified compressors) shippers can alter hourly flows for hourly demand swings. Hourly flow is increased from 1/24 to 1/18 of daily entitlement, limited daily to MDQ. Finally, for Texas Gas's generator service, shippers nominate quantities for FT through available capacity, just like existing FT. The pipeline combines that nomination with available off-peak storage capacity to handle delivery swings on an unnominated, firm NNS basis, April through October. There is variable hourly flow at primary delivery points and provision for seasonal, daily and hourly overruns, with other features mirroring existing NNS.

Propitious Present Moment

Potential customers from the electric industry face a receptive interstate pipeline industry on issues of employing the grid to ship natural gas to generate power. FERC largely approves gas transportation services for electric generation that pipelines propose, using their systems' available capacity not already subscribed. Those new services likely will play a very important role in resolving today's electric industry problems such as generator interconnection, transmission and RTO matters.

1. R. Hrehor & D. Sytsma, 140 Public Utilities Fortnightly 32, 35.
2. See FERC Feb. 13, 2002, Docket No. PA02-2-000, Fact-Finding Investigation of Potential Manipulation of Electric and Natural Gas Prices [in the West], Order Directing Staff Investigation.
3. Annual Energy Outlook 2002, EIA, U.S. DOE publication DOE/EIA-0383 (Dec. 2001) at 137.
4. ., 138.
5. FERC Stat. & Reg. ¶31,091, 31,250 (2000).
6. Hrehor & Sytsma, , 32.
7. 90 FERC ¶61,016, 91 FERC ¶61,200, 93 FERC ¶61,113 (2000).
8. 89 FERC ¶61,210 (1999); 90 FERC ¶61,213, ¶61,339 (2000).
9. 92 FERC ¶61,164 (2000); 95 FERC ¶61,086 (2001)(formerly Koch Gateway).
10. Order No. 636, FERC Stat. & Reg. ¶30,939 at 30,408 & n.100, 30,422 & n.131; 18 C.F.R. §284.7 (a)(4).
11. 90 FERC ¶61,182, 92 FERC ¶61,221 (2000); 94 FERC ¶61,242 (2001).
12. Hrehor & Sytsma, , 34-35.
13. 90 FERC ¶61,119, 91 FERC ¶61,174, 93 FERC ¶61,611 (2000); 94 FERC ¶61,209, 95 FERC ¶61,211 (2001).
14. 90 FERC ¶61,044 (2000).
15. 95 FERC ¶61,099, ¶61,486, 96 FERC ¶61,330, 97 FERC ¶61,208 (2001).
16. 97 FERC ¶61,096 (2001); 98 FERC ¶61,067 (2002).
17. 93 FERC ¶61,243 (2000); 94 FERC ¶61,365 (2001).
18. Hrehor & Sytsma, , 35-37.
19. 93 FERC ¶61,141 (2000); 94 FERC ¶61,322 (2001).

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