Page 2 | Presentation - NEPOOL Reliability Committee FERC Proceeding: What Is It? Coordination Between Natural Gas and Electric Markets (Docket No. AD12-12) NARUC – 2/3 – Commissioner Moeller requested comments on a set of specific questions concerning gas-electric interdependence FERC – 2/15 – To facilitate public input/access to issues raised by Commissioner Moeller, formal notice issued assigning docket and soliciting comments FERC – 2/16 – In press release, Commissioner LaFleur identified five areas of gas/electric interdependence on which she urged comments Note that this Solicitation of Comments docket is not a rulemaking (FERC is not required to act – but likely will) Comment due date – On or before March 30, 2012, but unlikely FERC will reject either late-filed comments, or reply comments
Page 3 | Presentation - NEPOOL Reliability Committee Why The Solicitation of Comments? Commissioner Moeller Solicitation of Comments - 2/3 – Due to recent events, we must ensure that outages and reliability problems are not the result of the lack of coordination between the electricity and gas industries Natural gas is becoming fuel of choice for electric generation, and trend is expected to continue due to: Retirements of coal plants Need for renewables to have natural gas as a baseload Gas prices are low, and are expected to stay that way While comprehensive solutions may be years in the making, not too early to start
Page 4 | Presentation - NEPOOL Reliability Committee Why Would New England Be Interested? Region is increasingly dependent on natural gas-fired generation During peak winter conditions, this dependency becomes more obvious, as seen in the 2004 cold-snap event ISO-commissioned study has revealed the need for additional gas supply/transportation capability in the region New England strategic planning initiative considering implications of increased natural gas-fired generation
Page 5 | Presentation - NEPOOL Reliability Committee Solicitation of Comments: Identified Questions Commissioner Moeller raised the following questions: What role should FERC have in overseeing better coordination? What duties, if any, should be delegated to NERC, NAESB, or other entities? To what extent should FERC defer to various regions of the country in addressing these challenges? Should FERC view organized electricity markets differently from bilateral electricity markets? If regional deference is given, what role should FERC play to assure that regional agreements are adhered to?
Page 6 | Presentation - NEPOOL Reliability Committee Solicitation of Comments: Identified Questions Does FERC need to address the potential for changes in gas flows caused by the increased use of gas for power generation? How should FERC help to harmonize the electric/natural gas markets given difference in electric and gas trading day? What will be the impact of the expected retirements of coal and oil- fired generation on the need for gas and electricity coordination? To what extent should FERC consider modifying its existing Standards of Conduct with regulated utilitieseither on an emergency basis or in a more fundamental mannerto assure greater coordination of these industries? Will progress be faster if policies are addressed in several baskets, such as communication, operation, contracting, etc.? If so, what are the appropriate baskets?
Page 7 | Presentation - NEPOOL Reliability Committee Solicitation of Comments: Potential Issues Among the potential issues that could be addressed by the numerous comments that are expected to be filed: FERC authority – those seeking greater coordination between the industries may argue for the exercise of FERCs statutory authority over both to effect change – similar to what was done in Order Nos. 636 and 888.
Page 8 | Presentation - NEPOOL Reliability Committee Solicitation of Comments: Potential Issues Deference to different regions – while the rules governing the natural gas industry are relatively uniform across the country, they are not in the electric industry – given the variety of organized wholesale markets and the existence of bilateral markets that are not located in an ISO/RTO region Parties will likely urge accommodation of these regional differences, with the understanding that any regional agreements addressing gas/electric coordination issues will be filed and enforceable at FERC Regional solutions run the risk of being slower to implement than nationwide solutions, so some urge bifurcated approaches (some national in scope, and some regional) depending on the issue
Page 9 | Presentation - NEPOOL Reliability Committee Solicitation of Comments: Potential Issues Changes in flows on interstate pipelines – This trend has already begun. FERC will certainly address in individual pipeline rate proceedings, but to the extent that stranded pipeline capacity is identified by pipelines in any comments as a systemic problem requiring a systemic solution, the resolution could be broadly applied Do flow changes create flow restrictions that may impact reliability? Unclear if this trend is attributable to greater use of gas- fired generation or simply the dynamic impact of shale plays on traditional long-haul pipelines
Page 10 | Presentation - NEPOOL Reliability Committee Solicitation of Comments: Potential Issues Harmonization of markets – Gas and electric trading days are not uniform. It would appear any attempt at harmonizing the two markets would invariably require tariff filings on behalf of interstate pipelines, utilities and/or ISOs. Generators may urge greater opportunities to make intraday nominations on a pipeline. NAESB can also play a role, but how fast can they act, and can such a process yield a consensus?
Page 11 | Presentation - NEPOOL Reliability Committee Solicitation of Comments: Potential Issues Impact of greater use of gas-fired generation in light of coal-fired/oil-fired plant retirements – will new pockets of constraints of pipelines be created, absent new construction/development? If greater demand for transportation capacity, will pipelines be incentivized to construct or propose new services? Will generators be incentivized to contract for firm service, or service that is close to firm, but more reliable than interruptible service?
Page 12 | Presentation - NEPOOL Reliability Committee Solicitation of Comments: Potential Issues Need for more natural gas infrastructure What are the prospects for additional gas infrastructure (pipeline as well as storage) in the region? Are the proper incentives in place for both natural gas companies to build, and for generators to contract? Does increased infrastructure/utilization create additional issues that may impact reliability – such as pressure fluctuations or gas quality differences? How can FERC fast-track the certificate process while still complying with its obligations under the Natural Gas Act?
Page 13 | Presentation - NEPOOL Reliability Committee Next Steps Given the deadline for comments, the different perspectives of NEPOOL Participants, the NEPOOL process and the nature of this proceeding, NEPOOL counsel and officers have been leaning against filing any comments on March 30, but seek concurrence of the members. NEPOOL counsel propose to summarize for members some of the key comments filed on March 30 and then discuss whether it is desirable for NEPOOL to file reply comments. There also will likely be additional opportunities for comments: depending on scope and substance of comments in this proceeding, FERC may issue a notice of inquiry (NOI), notice of proposed rulemakings (NOPR) and/or convene technical conference(s) to address pertinent issues.