The Environmental Protection Agency (EPA) could be a barrier to improving the coordination and reliability of the natural gas and electricity markets, said FERC Commissioner Philip Moeller recently.

"I've been very concerned that EPA's aggressiveness and timeline could create serious reliability issues," he said during an event sponsored by the Washington, DC law firm of Ballard Spahr on coordination issues. Referring to it as the "monster that I've created," Moeller has been the catalyst of the Federal Energy Regulatory Commission's (FERC) efforts to enhance the coordination of the two markets.

"The number of [EPA] rules, the uncertainty over them and short compliance timeline of three to four to perhaps five years may not be enough time to get the proper infrastructure in place, whether it's new gas pipelines or new transmission facilities," he said.

A number of factors -- low-priced gas, the prolific development of shale gas supplies and increased fuel switching due to the number of environmental regulations targeting coal -- have led to increased demand for gas as a power generating fuel, according to Moeller As a result, the gas and electricity markets have become more interdependent than ever before. Outages on the electric side affect the ability of gas to be delivered, and vice versa (see Daily GPI, Feb. 7, 2011).

Moeller also raised the question of whether the Commission's standards of conduct were a barrier to effective coordination between the two markets. "We've generally felt that they're not. But we need to at least provide some clarity [on this]. I'm seeing that as more of a short-term issue to feel more comfortable as we're going into this heating season, that we get some clarity prior to November."

The longer term issues "are related to the right incentives for sufficient pipeline capacity to new markets that will be using gas in a way that...the gas system wasn't really designed to handle," Moeller said. "It was more of a city-gate, LDC [local distribution company] seasonal load. Now with CTs [combustion turbines] coming on that may or may not be called for in the day-ahead market, enormous amounts of gas are being pulled off the system." CTs typically burn natural gas.

A key issue to be worked out is who should pay for the new pipeline capacity, Moeller said. Some say the "electricity customers should pay for it because they're essentially the ones causing the new demand or dynamics...That's any easy answer, and of course it's more complicated than that."

Greater harmonization of trading in the gas and power markets is needed as well, he said. "I think there is a growing recognition that there are some inefficiencies in the timing if you're putting generators in the position where they don't know whether they're going to be called, and yet the nomination schedules don't line up with their bidding schedule."

The Commission has planned five technical conferences this month to address the coordination issues, the first of which was held Monday in St. Louis, MO. Subsequent conferences will be held Aug. 20 at the Hyatt Harborside at Boston's Logan International Airport; Aug. 23 at FERC's headquarters in Washington, DC; Aug. 28 at DoubleTree by Hilton Hotel Portland in Oregon; and Aug. 30 at FERC headquarters. All the conferences will be webcast.

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