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FERC commissioners troubled by reliability vulnerabilities tied to fuel security in parts of US

Washington (Platts)--20 Apr 2018 151 pm EDT/1751 GMT


Although natural gas and power prices were relatively low across the US last year, fuel-security issues plaguing New England and Southern California led to some close calls for grid operators tasked with keeping the lights on, commissioners reflecting on the Federal Energy Regulatory Commission's 2017 state of the markets report said Thursday.

The report, which FERC staff presented during the commission's open meeting Thursday, said average natural gas spot prices rose 21% from 2016 but were still considered low compared with prices seen prior to 2015.

Similarly, the average day-ahead power price in 2017 was up between 3% and 13% at the different pricing nodes within the independent system operators and regional transmission organizations, yet prices at the eastern trading hubs were near their lowest average levels since 2010, according to the report.

SOME AREAS SAW RECORD HIGH PRICES

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But when honing in on areas facing pipeline constraints and/or extreme weather events, the report highlighted prices shooting up to all-time record highs.

For instance, next-day natural gas prices at the Southern California Gas city-gate hit a record $11.83/MMBtu October 24 as "storage limitations at Aliso Canyon, combined with pipeline issues along the SoCal Gas system and colder-than-normal weather led prices to increase late in the year," Eric Primosch, a staffer in FERC's Office of Enforcement, told commissioners.

Alexander Ovodenko, also of FERC's Office of Enforcement, added that "natural gas prices in New York City, New England and the Mid-Atlantic all set all-time record highs" during the winter cold snap from December 26, 2017, to January 7, 2018. He noted that "next-day trades reach[ed] as high as $175/MMBtu in New York City on January 4."

Commissioner Neil Chatterjee said the winter bomb cyclone on the US East Coast created "genuine apprehension about grid reliability within ISO New England as natural gas and oil stocks dwindled." And looking to the West, "pipeline outages in southern California further strained already taxed natural gas infrastructure leading the [California Public Utilities Commission] to issue a warning that natural gas generators could face supply curtailments going into winter."

Fuel-security concerns in New England and Southern California have "grown into real anxieties," he contended. "So now I look back on 2017 as a year of close calls that underscore the importance of examining fuel security issues."

He applauded ISO-NE and others who are exploring how to mitigate fuel-security issues in their footprints, and said he looked forward to receiving input from stakeholders on the issue as part of the commission's review of grid resilience.

GAS-ELECTRIC COORDINATION CONTINUES TO BE AN ISSUE

Commissioner Robert Powelson offered that the latest state of the markets report also hit on the theme of gas-electric coordination, an issue the commission has been focused on for a number of years.

He categorized the situations Chatterjee referenced in New England and Southern California as "alarming."

Regarding New England, he noted that 15 million customers in the region "paid some of the highest gas costs in the country" and "could face major reliability concerns going forward."

Further, "we also continue in this day and age to see, on the Eastern Seaboard in particular, this continued basis blowout scenario on the Transco hubs," he said.

Transco's Zone 6-NY trading hub saw gas prices trade above $100/Dt on certain days this past winter. Despite record gas production in areas that include Powelson's home state of Pennsylvania, localized bottlenecks continue to limit how much gas is able to reach high-demand market centers like New York City.

Powelson added that he was "very concerned" about California's phase out of the Aliso Canyon gas storage facility as the state tries to meet a 50% renewable energy target and deals with the closure of certain nuclear generation.

"Who would have thunk that we would be approving [reliability-must-run] contracts for gas units in California?" he said. "Alarming situations."

But Powelson also pointed to a "silver lining" in the form of the competitive wholesale markets. "The analytics in today's report is really testimony to the benefits of organized markets and what they do in terms of providing reliability, new build and energy infrastructure investment," he said.

He noted the organic growth of the western energy imbalance market as "a success story," and highlighted the EIM's role in mitigating stress to the California grid when a solar eclipse, the first since the region's significant boost in solar capacity, swept across the US on August 21.

LOOKING TO 2018

From an electricity standpoint, significant trends FERC staff will be monitoring in 2018 include the potential integration of the Mountain West Transmission Group into Southwest Power Pool, additional entities joining the EIM and gas-electric coordination in Southern California.

Concerning California Independent System Operator in particular, Ovodenko said Southern California "remains a focus due to Aliso Canyon-related constraints, continued pipeline outages, the retirement of natural gas-fired power generation and steeper ramping requirements in Cal-ISO, leaving California markets vulnerable to extreme weather in 2018."

On the natural gas side, Primosch said staff planned to continue to follow index liquidity and transparency issues in 2018 and would also be paying attention to the impact of increased gas exports on domestic production and demand.

Office of Enforcement staffer Adam Bennett chimed in that the Cove Point and Elba Island LNG export terminals are expected to add a combined 1 Bcf/d of gas demand in 2018.

"In isolation or in a status-quo environment that would take away from the ability to restock storage [inventories] during the injection season, but this comes during a time when we're forecasted to see record high natural gas production, so we don't see that as an impediment," Bennett said.

--Jasmin Melvin, jasmin.melvin@spglobal.com

--Edited by Valarie Jackson, newsdesk@spglobal.com



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