2.
Provide your organization’s comments on the current proposed problem statements provided in the discussion paper:
For the reasons discussed below in further detail, Idaho Power is particularly interested in the following problem statements provided in the discussion paper: (1) bidding flexibility; (2) resource system limitations; and (3) gas system limitations.
Idaho Power would like to note and highlight a few of the operational challenges and differences that exist in the Northwest, and for Idaho Power specifically, as it pertains to the gas markets. These include:
- Differences in definitions of Operational Flow Orders (“OFO’s”) and Entitlements on different pipelines;
- Pricing the cost of penalty gas and market volatility in bids; and
- Flexibility and liquidity necessary to procure gas to serve load and manage imbalances.
With increased demand for gas stemming from increase power burn generation, it has become increasingly difficult for pipelines and shippers to manage imbalance tolerances while maintaining integrity and reliability. As such, there has been increase in Overrun and Under Entitlements periods over the last year. For example, Entitlements on Northwest Pipeline are similar to OFO’s on California system which are implemented in the event of high or low pipeline inventory situations. Entitlements require shippers to balance supply within a specified tolerance band. However, penalties for noncompliance for either OFO’s or Entitlements could be as high as four times the highest market hub price on the system.
During peak usage seasons or low- or high-priced market environments, it can be assumed that the pipeline will operate under an Entitlement. As such, Idaho Power has limited ability to pack or draft gas on the pipeline to manage uncertainty in awards and schedules in order to true up real time actual burn/run schedules. Further, Idaho Power has limited storage capacity that is physically located outside of its balancing authority and at times may not have ability to call on storage gas due to constraints on the system. These issues are highlighted in the fifth problem statement.
Idaho Power is a shipper on Northwest Pipeline, a bi-directional pipe, that relies on gas flowing either north or south to provide physical displacement capacity through compressors to meet firm shipper contract commitments. Northwest Pipeline calls on OFO’s or “Must Flow” orders to offset and create displacement by requiring shippers to nominate counterflow gas when net gas flows exceed compressor design capacity, flowing predominantly in one direction. OFO periods cause large price spreads between market hubs which exposes Idaho Power to financial risk. Idaho Powers often must buy gas at drastically different market prices during the timely cycle due to market volatility or system constraints. In these situations, when Idaho Power is exposed and purchases gas at higher market prices after timely cycles, pricing may not be known and may not be accurately calculated into awards/bids. Additionally, this heightened cost may not be captured by the Default Energy bid.
Managing pipeline system limits and tolerances is an issue that Idaho Power encounters daily and EDAM will likely further compound these challenges and problems.
Appendix A assumes there will be opportunity for optimization, liquidity and price discovery during the evening cycle. However, at times there is not sufficient market liquidity to procure gas in the Northwest during the evening cycle. Again, Idaho Power may be forced to purchase gas at a very high price or sell at a loss which may not be priced into a bid or award. During OFO or Entitlement periods, Idaho Power may not find liquidity in the gas market for the evening which could lead to a noncompliance penalty. Relying on gas procurement in the evening cycle leads to unquantifiable market exposure and financial risk.
