Document 82B11ZXqRg3Qe2jN4zYLKyGNa

: 36TH ANNUAL SEMIb MARKETS, AND RESC 17cv01906 Sierra Club v. EPA HnHfllhiwapWhat ED_O01523_00006097-00001 17cv01906 Sierra Club v. EPA ED_001523_00006097-00002 /o Crucial Energy Markets ISO-New England, the regional wholesale electricity market for Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont is increasingly reliant on natural gas. Roughly 50% of their electricity comes from gas-fired generators. The wholesale electricity price is typically dictated by the fuel cost for gas-fired generators. Electricity generators buy gas mostly in a secondary market. Their fuel cost is determined by the spot price for natural gas. Increased natural gas prices will be strongly amplified through the wholesale electricity markets. 17cv01906 Sierra Club v. EPA ED_001523_00006097-00003 Observations re: Basis Differential and Constraint Thresholds Wyoming Trading Hubs - Mason et al. (April 2014) Gas generally flows from west to east between these two hubs, so that one may interpret the source of supply as represented by the trading hub in the western part of the state (the Opal trading hub) and the source of demand as represented by the trading hub in the eastern part of the state (the Cheyenne trading hub). IjiM 0.8 KJ _ 0.6 Mean A s'- " aI 0.3 ]|||M 0 -- O5* MO- 90%5 3.. #714 Utilization Rate at Bottleneck Figure 3: Basis r^ftereuruB . Urhrsaior Rare 97%. 14 17cv01906 Sierra Club v. EPA tlie capacity of iie bottleneck ED_001523_00006097-00004 New England Trading Hubs Black & Veatch for NESCOE-April 2013 ^^ iMlilli^^ iilili^^ iM^ Figure H <: i 'parity I itti.-gs,', '-^. 8-,;i ; Far?-' Mavac ,, .art'--. Juki /Sil iia^. Ye,r 10096 7.-. Up Z Z.i'i - - <,*,,/ r C "a ,. ' , * . .t< , i. 75 W ert?wb 2596 096 1 12 IO 8 6 4 2 O 1 31 SI 91 121 Ibl 181^ 211 241 271 301 Basis: Wrinessee Gas Pipeline Zone B ($/M!VIBtu| 31 61. 91 121 151 ,181 211 241 271 301 331 331 361 3. 17cv01906 Sierra Club v. EPA ED_001523_00006097-00005 Skipping Stone New England Analysis (undertaken to support regional policy discussions) 500,000 450,000 Nat Grid - Boston Gas Timely vs. EOD Scheduled Qtys 400,000 350,000 300,000 250,000 200,000 150,000 100,000 . 50,000 0 - ....-......T-------- -I--------- 1--------- r--------- 1---------t-------- -- . - ------------1---------- r--------r--------- >---------------------r - t------- -- - t r r ' > r- > > Timely Total Sched Qty ' 17cv01906 Sierra Club v. EPA ED_001523_00006097-00006 38,000,000 36,000,000 34,000,000 32,000,000 3o,ooo>ooe 28,000,000 26,000,000 24,000,000 22,000,000 20,000,000 18000,000 16,000,000 14,000,000 12,000,000 10,000,ooo 8,000,000 6,000,000 4,000,000 2,000,000 0 (2,000,000) Nat Grid - Boston Gas Cumulative EOD Scheduled and Showing Gas left on Pipe or (Excess Scheduled) vis Timely Nominated and Scheduled ^2% Difference From Aggregate ' ~2% Difference From Timely In Aggregate '2% Difference From Timely In Aggregate --CuniuatveEODWinter2012/13"-TM-CuirulativeNet2012/13V/irter Cumuatve Net 2C13/14 Winter Cumulative EODWinter201^/15 emulative EOD Winter 2013/14 Cumulative Net 2014/15Winter 17cv01906 Sierra Club v. EPA ED_001523_00006097-00007 17cv01906 Sierra Club v. EPA ED_001523_00006097-00008 20,000,000 19,000,000 18,000,000 17,000,000 16,000,000 15,000,000 14,000,000 13,000,000 12,000,000 11,000,000 10,000,000 9,000,000 8,00^000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 (1,000,000) Eversource- NStar Cumulative EOD Scheduled and Showing Gas Left on Pipe or (Excess Scheduled) vis Timely Nominated and Scheduled 14;5% D-fference From Tirre y In Aggregate & - Curr u ative EOD Winter 2012/13 ---Cumu ative Net 2012/13 Winter Cumu ative EOD Winter 2013/14 ----Cun'uativeNet2013/14Winter Cumu ative EOD Winter 2014/15 - Cumu ative Net 2014/15 Winter 17cv01906 Sierra Club v. EPA ED_001523_00006097-00009 Algonquin Pipeline 17cv01906 Sierra Club v. EPA a Compression Station Interconnect Suspect Avangrid Node - Suspect Eversource Node ED_001523_00006097-00010 Distinctive Patterns Study examined 8 million data points - three years of scheduling data from the Algonquin pipeline (August 1, 2013 through July 31,2016). Discovered that local gas utilities owned by two companies Eversource and Avangrid - routinely scheduled large deliveries ahead of time, then sharply reduced those orders at the last minute. Other utilities consistently made slight adjustments both up and down, throughout the day, averaging +/-5 to 15% in either direction. Eversource and Avangrid regularly made large downward adjustments averaging 10 to 50% in final hours of the trading day. This "down-scheduling" consistently came too late for pipeline companies to make that capacity available to anyone else, effectively limiting available gas supply in the wholesale market. 17cv01906 Sierra Club v. EPA ED_001523_00006097-00011 Scheduled Daily Quantity (MMBtu) Typical Scheduling Pattern 120,000100,000- 80,00060,00040,00020,000- Winter Each line represents one scheduling period and gas day. Changes are typically made close to the START of the gas day. Timely Cycle (1pm) Start of Gas Day (9am) End of Gas Day (9am) 17cv01906 Sierra Club v. EPA ED_001523_00006097-00012 Scheduled Daily Quantity (MMBtu) Eversource Scheduling Pattern 50.00040.00030,00020,00010,000- Winter Each line represents one scheduling period and gas day. Big changes consistently occur near END of gas day. o I Timely Cycle (1pm) Start of Gas Day (9am) End of Gas Day (9am) 17cv01906 Sierra Club v. EPA ED_001523_00006097-00013 Scheduled Daily Quantity (MMBtu) /.vangrid Scheduling Pattern 120,000100,000- 80.00060.00040,000- Winter Each line represents one scheduling period and gas day. Big changes consistently occur near END of gas day. 20,000- Timely Cycle (1pm) Start of Gas Day (9am) End of Gas Day (9am) 17cv01906 Sierra Club v. EPA ED_001523_00006097-00014 Extreme Amplification Electricity price with actual vs. counterfactual gas price o CO Actual Electricity Price Simulation using Actual Gas Price Simulation using Counterfactual Gas Price Difference between (2) and (3) $/MWh o 2013 2014 2015 2016 17cv01906 Sierra Club v. EPA ED_001523_00006097-00015 Conclusion from Paper Pipeline market reforms that facilitate more flexible contracting mechanisms, more frequent scheduling cycles, and act to prevent capacity withholding, or impose a cost for capacity withholding and create a publicly-available record of capacity withholding; all of which will serve to better align the gas transport and electricity markets, could help to create more liquid markets in which firms find it more difficult to exert market power. 17cv01906 Sierra Club v. EPA ED_001523_00006097-00016 Market rules need to be updated to enhance gas/electric coordination, reliability and grid transformation. The gas market design generally assumes uniform hourly (i.e., ratable) flow for the average day (flat red line above). Flow used by generators is far more shaped over the course of the day (blue shaped line) to match electrical output with load. 17cv01906 Sierra Club v. EPA ED_001523_00006097-00017 Natural gas and electric markets do not price and value fuel supply for flexibility attributes, yet flexibility is the paradigm of the evolving electric grid. Spring 2012 Electricity Revenue per MMBTU The value of and cost for generators to obtain gas over the course of the day varies, yet generators face structural challenges and are sometimes impeded in accurately reflecting that variation in the organized markets. 18 17cv01906 Sierra Club v. EPA ED_001523_00006097-00018 Particularly in Organized Electric Markets, natural gas services do not reflect the variation in services and pricing seen in the wholesale electric markets. This expresses itself in pipeline requirements for ratable flow even when it would be possible for shippers to vary receipts and deliveries such that they are in balance hourly, but are nonetheless non ratable. Even in vertically integrated markets, the ratable flow requirement frustrates sub-day scheduling of gas to meet sub-day demand for gas-fired electric generation. For the most part, there is no partial-day non-ratable take "market" for gas; therefore there are no price signals to inform exactly what combination of natural gas facilities and services are required to meet the variable demands of natural gas-fired generation - demands that will only increase as the electric grid integrates more renewables and relies more heavily on natural gas generation to meet electricity demand. 17cv01906 Sierra Club v. EPA ED_001523_00006097-00019 Ef 3 Process - NAESB WGQ Proposed Definition 1.2.[z1] A Shaped Nomination is a nomination in which a Service Requester grovides both a daily quantity and a quantity for each hour of the Gas ay, with each hour beginning at the start of the hour (e.g. 10:00 AM). NAESB WGQ Proposed Standard 1.3.[z1] Where a Transportation Service Provider offers a service under its tariff, general terms and conditions, and/or contract provisions which expressly provides for a Service Requester (SR) to submit a Shaped Nomination, the SR should submit its nomination for that service as a Shaped Nomination using NAESB WGQ Standard No. 1.4.1 (Nomination). Receipt of service expressly providing for the use of a Shaped Nomination may require additional coordination with interconnected parties. A SR utilizing other services that do not expressly provide for the use of a Shaped Nomination should not be required to submit a Shaped Nomination nor does this standard prescribe any affect for services that do not expressly provide for Shapea Nominations. 17cv01906 Sierra Club v. EPA ED_001523_00006097-00020 17cv01906 Sierra Club v. EPA ED_O01523_00006097-00021 Conclusions Generators are not able to efficiently buy variable sub-day services and are somewhat restricted to what they can bid based on daily index pricing for natural gas supply. Shaped flows would allow generators to schedule varying flow quantities of gas for delivery the next day that correlate to their anticipated output levels. With updated scheduling and pricing regimes, sub-day flexibility on the gas side can be efficiently priced (enhancing allocative efficiency) providing benefit to pipelines, generators, flexibility service providers and consumer savings. Price formation increases innovation, product definition and spurs investment. In New England, standards and fostering transactions for services generators need and are willing to contract with pipelines is key to resolving the commercial stalemate and maintains allocative efficiency; a superior and market-based solution to RTO-controlled rate-based capacity (allowed only by Commission waiver). 17cv01906 Sierra Club v. EPA ED_001523_00006097-00022