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FERC Approves PJM Grid Changes Recognizing More Gas-Fired Generation

As it marked the milestone this month of the majority of its power supply coming from natural gas-fired plants for the first time, PJM Interconnection, the grid operator in 13 states and the District of Columbia, won FERC approval Tuesday for a program to boost reliability in terms of weather-related emergencies and peak loads.

PJM's capacity performance proposal will now be included in the grid operator's annual capacity auction for 2018-2019, following a 4-1 late night vote at the Federal Energy Regulatory Commission with Chairman Norman Bay dissenting. The key is that the measure, while adding eventually to consumer costs, will "ensure better generator performance and fuel assurance," according to PJM CEO Terry Boston.

Bay disagreed, calling the phased-in capacity program "a flawed, highly technical market construct."

As required in the FERC approval, PJM will make a compliance filing in the next 30 days while it is preparing for its annual reliability pricing model (RPM) capacity auction with the pre-auction deadlines posted on its website (www.pjm.com).

For gas-fired generators, which for the first time became the majority source for supplies in PJM, the action means greater incentives and cost recovery assurances to invest in additional pipeline capacity and supplies to ensure their plants when called on to operate at capacity can do so.

Part of the drivers for making this change, as cited by PJM in its filing and FERC in its order, was the supply bottlenecks for some gas-fired operators in January 2014 during the Polar Vortex winter freeze throughout the eastern half of the country (see Daily GPI, Jan. 16, 2014). For the most part the deep freeze strained the nation's gas pipeline infrastructure, but power supplies, including in PJM, stayed reliable.

Nevertheless, PJM said on the coldest day of that winter episode that 22% of the of its generation capacity was unavailable to serve customers. "Capacity performance will enhance the incentives for capacity resources to be available when needed most, along with helping reduce price spikes in system emergencies and reducing the chances of having expensive forced outages," the grid operator said.

With FERC approval, PJM's capacity performance requirements will cause gas-fired generators that don't have any backup fuel to invest in an oil or diesel system, along with strengthening their gas supply contracts. In addition, gas peaking plants that are only called on in peak load situations may have to do more in terms of maintenance to make sure they can operate with no start-up problems.

"I think the biggest impact on gas-fired generation is having the assurance of the fuel supply," a PJM spokesperson told NGI. "When a supply pipeline is looking at expansion -- particularly in the eastern part of PJM -- and they're looking to lock in pre-construction subscribers, this will provide incentives and compensation for the gas-fired generators to participate in [the expansion] to assure they have the fuel deliverability they need."

While PJM did not experience any power outages, supplies were very tight last year during the Polar Vortex and that provided what the spokesperson called "a siren call" to the fact that "there has been a major shift in fuel usage from coal to natural gas -- not just in terms of energy produced, but in terms of capacity. As of June, there is now more gas-fired capacity than there is coal-fired."

That provided the wakeup call to PJM's officials about the increased dependence its grid now has on natural gas, the spokesperson said. "Coal plants typically have the coal pile right next to the plant, nuclear plants have the fuel in the core, but gas-fired plants typically receive their supply as it is used, so on a very cold day if you didn't sign up for firm delivery, you might have trouble being able to buy, or buy at an economic price."

The FERC-approved program is supposed to keep that situation from happening. It applies to all of PJM, which covers Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.

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