The Public Utilities Commission of Ohio (PUCO) on Thursday took the unusual step of publicly announcing that it had filed extensive comments with FERC imploring the Commission to more closely examine the market impacts that resulted from last winter's unseasonable cold and high natural gas prices.
In its comments, PUCO noted that PJM Interconnection, which manages the electric grid in 13 states, including Ohio, which accounts for more than one-fifth of PJM's entire load, was particularly hard hit last winter with an "unprecedented amount of forced outages" that pushed electric uplift costs in January alone higher than all of 2013.
Those outages, PUCO told the Federal Energy Regulatory Commission (FERC), were mainly the result of natural gas curtailments and equipment issues within PJM's system, prompting the agency to recommend to FERC an audit process to ensure generation equipment works, that the gas and electric days should be more closely aligned and that coal plant retirements should not be conducted prematurely to ensure fuel diversity during peak power demand.
"The genesis of these comments came from the FERC technical conference back in April," PUCO spokesman Matt Schilling told NGI's Daily GPI. "Of course, we do often file comments before FERC in any number of proceedings, but we never really put releases out about them. The winter outages were a big deal and news already, so we decided to go ahead and put this out there."
PUCO's comments come at a time when the long-running issue of gas-power coordination is becoming more imperative after one of the coldest winters in decades, which sent natural gas prices to historical highs. At the same time, more coal-fired power plants are being shuttered and power generators are increasingly relying on natural gas to fill the void.
In March, FERC issued a notice of proposed rulemaking that would tackle the nettlesome issue by moving the gas day earlier and increasing the number of intraday nomination cycles in order to give power generators in each time zone a better opportunity to adequately schedule gas for power demand (see Daily GPI, March 20).
FERC also agreed to hold a technical conference in April to evaluate the U.S. electric grid's performance and review interaction between the natural gas and electricity markets (see Daily GPI,March 27), as many of the nation's centrally cleared power markets, where gas is nominated for generation, faced similar issues during last winter's severe cold.
In its comments to FERC, PUCO quoted PJM Executive Vice President Michael Kormos, who said at the conference that forced outages last winter reached approximately 22% of all of PJM's installed generation capacity, or more than three times the typical rate. PUCO suggested that gas curtailments were almost as much to blame as equipment failure. For instance, it said in January, particularly over the Martin Luther King Jr. holiday weekend, that high electric prices "resulted from historically high natural gas prices."
PJM, PUCO said, was also forced to direct generators to burn expensive gas in high-cost peaking units for the entire weekend in order for those units to be available to serve anticipated loads on the Tuesday after the holiday.
"Notably, it was not the gas transportation issues, but rather some of the gas procurement issues that had a greater impact on system operations, dispatch and ultimately price," PUCO quoted Kormos as saying in a statement made at the FERC conference. "The relative lack of transparency of these secondary markets, which often bundle transportation or supply, left PJM in the untenable position of being asked to commit generators prior to the day-ahead energy market. The combination of high prices, coupled with the absolute inflexibility to manage the units economically, significantly increased the costs and complexity in scheduling."
In its comments, PUCO urged FERC to consider requiring better alignment between the gas and electric industries. It also said greater consideration needs to be given to premature coal retirements, new renewable energy sources and on-site natural gas storage and firm transmission contracts.
"While the Ohio commission takes no position on whether firm gas contracts would be a more desirable option than depending upon the spot market during shortage periods, [FERC] should further explore firming up winter fuel supply through forward arrangements," PUCO said.
In all, PJM reported at the conference that January uplift charges resulting from outages, gas curtailments and other winter-weather issues, were $8.2 billion more than the same period in 2013. Both the Pennsylvania Public Utilities Commission and PUCO were later forced to open investigations related to supplier FirstEnergy Solutions, which wanted to pass through some of those PJM charges to millions of fixed rate customers in both states.
After a public outcry, FirstEnergy dropped its push to do so, but PUCO is still trying to determine whether such charges should be banned or allowed under certain circumstances.
"The commission here in Ohio has open proceedings on fixed-rate contracts and passing on uplift charges, specifically we're encouraging FERC to examine whether those charges are reasonable to exist in the first place," Schilling said. "As far as gas-electric coordination, FERC does have open proceedings on that right now, with comments due in September or October on their proposed rulemaking. We will certainly be filing separate comments on that issue."