New England power generators did not break any rules by selling natural gas to local gas utilities rather than using it to produce power during a cold snap in January, FERC’s Office of Market Oversight and Investigations (OMOI) concluded last week.

The New England Independent System Operator (ISO-NE) “successfully managed the stress condition,” and the shift of gas by power generators to local gas distribution companies (LDC) “helped the heating market survive,” according to the preliminary results of an OMOI investigation.

“The rules worked, and [a] bullet was dodged here,” OMOI Director William Hederman told reporters during a press briefing at FERC headquarters last Thursday.

FERC’s preliminary findings covered the Jan. 12-16 period, during which a severe cold snap affected the region, leading to unprecedented natural gas and electricity consumption. Both regional LDCs and ISO-NE set delivery records for the period, and both the ISO-NE and the Northeast Gas Association issued appeals for consumers to conserve energy.

Natural gas spot prices hit a record level of more than $70/MMBtu on Jan. 15 (only 42,000 MMBtu changed hands at that price, OMOI said, less than one tenth of 1% of the sendout capacity for that week). Power prices rose to approximately $1,000/MWh in a few transactions. Some of the gas fired generators, representing about 1,500 MW of capacity, chose to sell their gas rather than run their generation units on Jan. 14. Their capacity equaled about 20% of the gas-fired capacity in the region.

For the day-ahead market on Jan. 14, ISO-NE determined it could meet the projected load of 22,075 MW. But that night (Jan. 13-14) about 822 MW of generation capacity went down for mechanical reasons related to the cold snap. The ISO was forced to issue a conservation appeal on the day of Jan. 14, calling some of the generation units that had taken the “economic-out option” back into operation. On Jan. 15, the ISO found itself with sufficient power but supply margins still were tight. And then on Jan. 16, the weather shifted and supply margins improved, the OMOI said.

Contrary to charges of possible generator profiteering by Connecticut Attorney General Richard Blumenthal, FERC staff found that the generators’ gas sales, which made up about 5% of LDC demand needs in New England, actually helped gas utilities meet soaring demand during the deep freeze. Blumenthal, meanwhile, has sent subpoenas to owners of power plants in Connecticut as part of his own ongoing investigation into whether power suppliers may have done anything untoward during the cold snap that lasted several days in January.

OMOI’s Bob Flanders said FERC’s conclusions were still preliminary, and he stressed that OMOI was still looking into some power marketers and gas trading activities. “Both the gas and electric markets were under significant stress during this period, but performed well,” said Flanders. “All firm requirements were met. Even though gas prices got to a relatively high level, there was a fairly small volume [involved].

“The price signal of the natural gas market provided the impetus for a kind of balancing of fuel between the electric and gas sides, providing a critical supplement to the heating supply of natural gas distribution companies, which allowed them to serve their firm load without interruption and it was a supplement to peak-shaving supplies that LDCs normally use to serve winter peaks,” Flanders said. “It turned out to be a critical adjunct to that supply.”

FERC staff indicated that without these gas supplies being provided by power generators the LDCs may not have been able to meet their heating demand during a period when wind chills were colder than 30 below zero. However, in FERC’s final report it will make recommendations for market changes, Hederman indicated. One recommendation probably will deal with improving communication between the gas and power markets during periods of peak demand.

©Copyright 2004 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.