FERC Filings
STATEMENT OF THE ELECTRIC POWER SUPPLY ASSOCIATION AT THE FEDERAL ENERGY REGULATORY COMMISSION'S TECHNICAL CONFERENCE ON THE EMERGENCY REALLOCATION OF NATURAL GAS
BODY
Presented by Craig Chancellor, Director, National Fuels Regulatory
Calpine Corp.
April 23, 2002
Since September 11th, we are all much more aware of the need to be prepared in times of emergency. Generators and marketers appreciate the Commission’s interest to meet natural gas needs in times of emergency and the decision to convene this technical conference. The Electric Power Supply Association’s (EPSA) members produce a third of the electricity in the U.S. using a variety of fuels, including natural gas. Of the total gas-fired generation in the U.S., 60 percent comes from non-utility generators. As such, we are large users of natural gas and the natural gas system and thus have a significant interest in natural gas reallocation.
Consistent with its views in other proceedings, EPSA generally supports regulatory efforts that rely on market solutions rather than restrictive command and control mechanisms. EPSA members have supported the Commission’s efforts that have unbundled natural gas sales and made the wholesale natural gas market competitive. Over the past two decades, the wholesale natural gas market has transitioned from a vertically integrated industry with bundled sales to an unbundled market. The natural gas grid is more flexible and efficient than ever as a result of Commission decisions in Order Nos. 636 and 637. Moreover, the uses of natural gas have been transformed from one where natural gas could not be used to produce electricity in the early 1980s, to one where natural gas has accounted for over 17 percent of the electricity produced in 2001. In fact, now environmental laws such as the Clean Air Act often necessitate the addition of natural gas-fired generating capacity. The existing regulations regarding reallocation and curtailment of natural gas dating back to the late 1970s and early 1980s could not, of course, have taken this transition into account and thus have decreasing relevance to today’s natural gas market.
EPSA submits that the current market practices will ensure that the country’s natural gas infrastructure will allocate gas fairly to customers in times of emergency. If, however, the Commission sees a need for additional measures to address emergencies, it is EPSA’s view that it would need to promulgate completely new regulations.
Attempting to identify and prioritize natural gas requirements would be difficult and would require the development of a complex system requiring constant maintenance. The current market system and its ability to reallocate gas among shippers is sufficient to meet the needs of the market. Attempting to determine importance of emergency need would be counterproductive given the current system.
The following points address the Commission’s discussion questions that accompanied this technical conference notice.
- Industry practices regarding the reallocation of natural gas should be left to current curtailment policies that follow the economics of the market. These policies give the market adequate flexibility to respond to emergencies.
- If existing market-based solutions are used to respond to emergency situations, antitrust limitations will not disrupt reallocation response coordination.
- Electronic bulletin boards, advanced telecommunications systems and high-speed computers support the modern gas market. This technology provides the basis for communication and coordination in times of emergency.
- While state processes are important to consider in any emergency reallocation, given the networked nature of the natural gas pipeline system and its relationship to the production of electricity, EPSA supports the Commission pursuing regional solutions. Any emergency affecting the allocation of natural gas to an electric facility in one state will affect the electricity grid and natural gas infrastructure in surrounding states. Regional coordination that integrates existing state processes will serve the country best in times of emergency.
- Reliance on dated reallocation procedures will do little to help in times of emergency, due to the significant changes in the natural gas market over the past two decades. Should the Commission find that there is a need for new regulations beyond the current market solutions, EPSA submits that generators and power marketers serve many critical customers. Consequently, EPSA believes that the Commission should provide electric suppliers the maximum opportunity to provide the information necessary and to participate in the development of any contemplated reallocation scheme.
- EPSA cautions the Commission about attempting to identify and prioritize reallocation efforts based on need. The reallocation plans of the 1970s demonstrated the problems in this regard. The process of keeping the plan current so that it remains non-discriminatory would be problematic, and could make any new emergency allocation plan unmanageable and, consequently, unworkable.
- Suppliers should be compensated for services rendered during times of emergency. If the Commission opts to require emergency allocations rather than relying on existing market solutions, then the Commission will need to serve as a backstop regarding compensation to ensure fairness.