Stand-by Peaking Gas 

Contracts from a Small 

End User Perspective

Commodity Futures Trading Commission

Energy and Environmental Markets 

Advisory Committee Meeting

July 29, 2015

Amy Fisher

Managing Director, Regulatory Affairs

GE Energy Financial Services, Inc.

For Cogen Technologies Linden Venture, L.P.
Linden Cogen

800 MW plant 

serving NYC 

load (~8%) and refinery 

steam needs for 

fractionating 

petroleum 

products.

Critical need 

for natural gas 

fuel

Delivery of NG 

to Linden is 

highly regulated 

by Federal Energy Regulatory Commission 

and NJ Board of 

Public Utilities.

One Possible Path of Natural 

Gas Sourcing for Linden Cogen

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Linden Cogen’s Natural Gas Suppliers

LDC 1

LDC 2

 Linden Cogen has entered into an Agreement with two Local Distribution Companies

(LDCs), which collectively supply 100% of its base requirement for natural gas.

 The Agreement was approved by NJ Board of Public Utilities (NJBPU), which retains

jurisdiction over any amendments.

 The Agreement permits the LDCs to curtail deliveries up to 20 days/year when the

temperature is lower than 22°F to prioritize residential heating load. NJBPU has required

that Linden Cogen identify a replacement source for those periods. 

 Linden Cogen must have 100% natural gas deliveries at all times.

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Indicative Peaking Gas Arrangement Terms

 Approved annually by NJBPU in 2012, 2013, 2014.

 Gas nominations on up to 20 days; exercised by Linden Cogen 

following 24-hour curtailment notice from LDCs.

 Linden Cogen has no discretion to determine when the peaking 

gas nomination will occur.

 Stand-by reservation fee - $/stand-by volume; commodity priced at 

spot at point of delivery; LDC fee for transportation.

 Curtailment requires LDCs to acquire Linden Cogen’s peaking gas 

and transport it to the plant – no opportunity for Linden Cogen resale.

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The Peaking Gas Contract is a Commercial Supply Agreement

 Procured to fill 100% of Linden Cogen’s supply needs

 Linden Cogen does not control nomination and has no option

 Commodity price risk has not shifted

However, because the Peaking Gas Contract is for a commodity and nomination is optional 

(at the direction of the LDCs), uncertainty remains as to its classification.

 Internal compliance and regulatory

 Lenders and other credit counterparties

 Accountants/Finance/treasury

 Others in the future

Without further clarification, may require treatment as “commodity options” or “trade options”, 

which may require Linden to:

 Segregate this contract from its other recordkeeping and mark-to-market.

 Explain to credit counterparties why this contract does not constitute “swap” or 

“derivative” exposure.

 Allow extensive internal monitoring and review to comply with Dodd-Frank and financial 

reporting (including CEO-level public certifications).

 Provide a risk mitigation framework and analysis, even though the contract is not entered 

into for hedging purposes, but rather to procure natural gas. 

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Clarification that these Peaking Gas Contracts are not “commodity options” 

is necessary

 This issue has been outstanding since 2012 and has not been clarified.

 The final Trade Option rule is where concerned end users will look for this guidance.

 Commissioner Bowen has proposed an approach for clarifying and requested comment in 

her concurrence.

 Failure to respond to Commissioner Bowen’s concurrence may lead to further confusion.

New Rules in Eastern 

Interconnect Highlights the 

Need for Clarification

Two of the regional electric grid 

operators regulated by FERC severely 

penalize electric generators that do not 

run when needed for failure to obtain 

natural gas. PJM (Mid-Atlantic region) 

is requiring the most flexible natural 

gas procurement available. 

Generators will increasingly look to 

satisfy their 100% natural gas 

requirement from several back up 

suppliers to assure reliability of 

operation. 

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