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FERC Begins Inquiry into RTO/ISO Scheduling, Compensation Systems

Citing the lack of coordination between the scheduling practices of the natural gas and electric sectors, FERC on Wednesday instituted a Section 206 inquiry under the Federal Power Act (FPA) into the scheduling and compensation mechanisms of independent system operators (ISOs) and regional transmission organizations (RTOs).

The order requires the California Independent System Operator Corp., ISO New England Inc. (ISO-NE), PJM Interconnection LLC, Midwest Independent Transmission System Operator Inc., New York Independent System Operator and Southwest Power Pool Inc. to submit filings by Jan. 16, 2007 either proposing necessary changes to their scheduling and compensation systems or explaining why changes are not needed.

The Federal Energy Regulatory Commission issued the order in conjunction with a notice of proposed rulemaking (NOPR), which seeks to adopt standards proposed by the North American Energy Standards Board (NAESB) to improve scheduling coordination between interstate gas pipelines and the electric power sector (see Daily GPI, Oct. 26).

"The Commission is concerned that the issues raised by the 2004 cold snap [in New England] and by NAESB could have serious consequences in all the organized RTO/ISO markets if gas-fired peaking generators are unable to run or run profitably during emergency conditions, such as periods of coincident peak use in the electric and gas industries," the order said [EL07-1].

RTOs and ISOs frequently consider gas-fired generation to be necessary to maintain reliability, the order noted. "Yet, especially during periods when the demand for both electricity and natural gas is very high, the needed gas-fired generators may have difficulty buying gas and obtaining transportation because the RTOs' and ISOs' scheduling periods do not fit with the gas scheduling periods," it said.

Moreover, "if the gas-fired generator bids into the RTO/ISO market based on the then-current gas price, that price may change significantly by the time the RTO or ISO calls upon the generator to run, especially where severe weather makes gas prices highly volatile. For these reasons, we believe that these features of existing ISO/RTO tariffs may not be just and reasonable if they effectively discourage gas-fired generation from participating in RTO and ISO markets when it is most needed," the order said.

"We, therefore, are instituting inquiries under Section 206 of the FPA into the justness and reasonableness of the tariffs of the ISOs and RTOs," FERC noted.

"While the procedures adopted by ISO-NE [to improve scheduling coordination and recovery of high gas costs] may provide a good starting point, we recognize that each ISO and RTO faces different weather and other conditions, which may require individualized consideration and resolutions tailored to their specific conditions." In their January filings, "each ISO/RTO should examine its needs during both hot and cold weather emergencies, and other types of emergencies, such as those caused by Hurricane Katrina and its effect on gas availability and transportation. While ISO-NE has made substantial progress in adopting procedures to handle disruptions in the gas supply, their procedures address only cold weather events," the order said.

The Commission said it expects to issue a final order in its Section 206 investigation within 180 days.

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