Grid seeing ‘greatest fuel shift in its history’ — operators
The technical conference was focused on severe cold weather that led to record winter demand and high electricity prices in January and February. FERC staff today released a report on the event, which found that plentiful shale gas supplies weren’t able to make it to market because of pipeline constraints.
FERC staff said some companies went short physical — selling fuel because they thought prices could only go down — but “anybody short in January stood to have large losses in the daily market as January prices began to spike.” The agency’s staff also found that generators were hit particularly hard by the market stress and high spot natural gas prices, made worse by operational challenges — equipment freezing and malfunctioning — as temperatures dropped.
FERC acting Chairwoman Cheryl LaFleur and FERC Commissioner Philip Moeller directed the discussion toward ensuring reliability and expressed concern over growing costs for consumers. On the price side, LaFleur asked grid operators whether they were considering rule changes to reflect the price of fuel diversity in the markets in coming years.
Kormos said PJM is analyzing upcoming winter demand and potential outages, and which generators they can count on — and which units should be considered “firm.” Kormos also acknowledged cost is a concern and grid operators had to spend half a billion dollars in January to compensate units that operated at costs above PJM’s marking clearing price. “If we don’t pay them, they won’t run,” he said. “Reliability wins out every time, we’ll pay.”
Peter Brandien, vice president for system operations for ISO New England, said grid operators are trying to ensure that generators shore up enough fuel for coming winter months to avoid spot pricing. Brandien said system operators are in a “dilemma,” waiting to see what states will decide and not making investments in the meantime. “We need to take action,” he said.
Moeller reiterated his concerns that baseload power plants, namely coal, are retiring under new environmental rules and the focus needs to be on reliability — and getting the policies, infrastructure and prices right.
Kormos said PJM is probably the “poster child” when it comes to coal plant closures — with many set to close in the winter of 2016 — but said the region’s reserves are “covered” at 20 percent, higher than what’s required. Kormos also said demand response is here to stay.
Kormos and other grid operators stressed the importance of FERC’s recent work to align the electric and gas markets following the deep freeze that tested the country’s grid and gas systems. Kormos told FERC commissioners that PJM broke record demand peaks not witnessed since 2007. “That’s nothing I’ve ever seen before,” he said.
But Kormos rejected comments Sen. Joe Manchin (D-W.Va.) made in February that PJM was “within 700 megawatts of the system basically not being able to charge the grid” (Greenwire, Feb. 11). Kormos, instead, said PJM was actually 700 MW away from reducing voltage on its transmission lines again.
New England’s Brandien agreed that there are challenges ahead, and expressed concern that a 150 MW coal-fired plant and a nuclear plant — together about 770 MW — will shutter in coming months. “I have to replace that with something,” Brandien said, adding that it could be either oil or gas. “That’s a concern as we move forward.”
Gas industry groups, on the other hand, have pointed out that the grid remained reliable throughout the event.
Jim Tramuto, representing Southwestern Energy and the Natural Gas Supply Association, said in a statement that despite the unusual and prolonged cold weather across half the United States, spot prices at the Henry Hub never increased to pre-shale gas levels.
“Government forecasters didn’t see this extreme winter coming, but natural gas was up to the challenge, on some days supplying enough natural gas to meet typical U.S. demand levels twice over,” Tramuto said in a statement.