Gas-Fired Power Reliability Scrutinized Ahead of Winter Season

The dramatic increase in the share of natural gas fueling electricity generation is putting pressure on US energy regulators to consider the vulnerability of the energy source during winter storms.

About 40% of generation now comes from burning natural gas, a figure that has risen over the last decade amid an American drilling boom and the closure of coal-fired power plants.

But as gas has emerged as the country’s leading source of power, its position outside the regulatory scope of the electric grid has highlighted operational and cultural clashes between two energy systems that use distinct marketing cycles and deliver fundamentally different products.

“It’s vitally important that we get these two industries better aligned because the room for error is really reduced,” said Todd Snitchler, president and CEO of the Electric Power Supply Association.

Gas-electric coordination came under scrutiny following Winter Storm Uri, which caused outages in Texas and neighboring states in February 2021 and contributed to more than 200 deaths and as much as $130 billion in economic damages. Gas accounted for 72% of outages attributable to fuel during Winter Storm Elliott last December that hit the mid-Atlantic and Southeast states, according to the regional grid operator PJM Interconnection.

Gas-fired power units producing when they are needed, Snitchler said, “is the difference between the lights staying on and there being a catastrophe or an outage that can lead to the loss of life and property.”

Regulatory Response

But some new standards would encounter opposition from gas producers and pipeline companies, according to a closely watched report issued this summer intended to provide regulators with industry feedback on next steps.

While gas companies largely agreed with the electric sector on some of the report’s 20 recommendations, they split on suggestions to share more information with grid operators and require more weatherization actions from gas suppliers in order for them to declare force majeure, according to the report’s voting data. The recommendations, published by the North American Energy Standards Board, a Houston-based forum to promote industrywide standards, are now in the hands of the Federal Energy Regulatory Commission, which will decide what national actions to pursue.

The report’s three co-chairs wrote a blistering foreword in which they said the gas industry’s resistance to voluntary measures called for FERC to enact a muscular regulatory response and for Congress to establish a gas reliability organization. The gas industry’s opposition is “profoundly disturbing” and “reflects a fundamental lack of agreement regarding the lessons learned from these past two winters and the challenges ahead” in preventing outages, the report’s three co-chairs wrote.

“By and large, the grid operator knows about everything except for gas,” said Pat Wood III, a co-chair of the report and a former FERC chairman who served from 2001 to 2005. “We’ve got to level the playing field on the reliability front, so that the grid operators can drive that big boat called the power grid safely through the rapids.”

The force majeure language, a contractual clause that allows gas suppliers to escape delivery obligations for circumstances beyond their control, is “so big you can drive a truck through it,” Wood said.

“I think everybody viewed that as really shifting the risk disproportionately to the customers who don’t have the ability to control the gas procurement,” he said.

Costs to Gas Companies

Gas producers and suppliers argue they are taking the issue seriously and support some reforms. The Natural Gas Supply Association, in a statement following the report’s release in July, said the report “fundamentally mischaracterizes voting differences as a lack of seriousness.” On Thursday, gas producers including BP, Chevron, ConocoPhillips, ExxonMobil wrote to NAESB to complain of a “lack of impartiality and undue influence on the report” and pushed back that the forum endorsed the changes to force majeure language.

The Interstate Natural Gas Association of America said gas pipelines have a “strong record of reliably delivering to our customers even under the extreme weather seen during recent winter storms.” It opposed four of the 20 recommendations in a letter to NAESB.

“Attempts to recast recent winter storms as revealing reliability problems with interstate natural gas pipelines are unfounded,” said Christopher Smith, the group’s regulatory counsel.

Gas and electric industries agreed on the need to better align gas marketing schedules with the power markets so that gas-fired plants can purchase fuel at the optimal time.

The parties also largely agreed on the value of demand response, when electricity and gas customers voluntarily reduce consumption to ease strain on their systems.

And they agreed to call on the Energy Department or FERC to study, by region, whether there is enough gas pipeline infrastructure.

Gas companies already supply grid operators with plenty of data and have economic incentives to keep gas flowing and customers happy, said Patricia W. Jagtiani, NGSA’s executive vice president, in an interview. They are concerned about any move that increases risks and cost burdens to producers, she said. Force majeure language is already negotiated individually with buyers, and any disputes can be settled in courtrooms, she said.

“It was never fully clear what data they were really looking for, and how they were going to use it, and what that value was, and weighing that with the cost on the pipeline industry to provide that,” Jagtiani said.

Gas suppliers can face legitimate disruptions during extreme weather, but “are you actually going to change the rules in such a way that you’re going to hold an upstream supplier accountable for things that are outside of their control?” Jagtiani said. “For producers, that type of risk would not be acceptable.”

Lives at Stake

FERC did not respond to a request for comment on the report or next steps.

FERC Chairman Willie Phillips, a Democrat, has endorsed the central recommendation that lawmakers establish a gas reliability organization. The electric sector is subject to mandatory standards under the North American Electric Reliability Corp. (NERC), an electric reliability organization that reports to FERC.

“There is no one entity that sits at the nexus of the gas and electric industry that is responsible for reliability,” Phillips told Bloomberg in July. “I think that we need to have a NERC for the gas side.”

“It is a novel idea, but I don’t think it’s one that the gas industry is afraid of or should be afraid of,” Phillips said, adding he has prioritized quickly approving natural gas pipeline projects that he argues are needed for reliability.

The last time FERC took a serious look at gas-electric coordination was after a 2011 winter storm that caused gas and power outages in Texas and the Southwest. FERC opened a docket, at the urging of Philip Moeller, a Republican commissioner at the time, to solicit feedback and hold roundtables.

But the commission ultimately made only minor changes “around the edges” of the real issue, said Moeller, executive vice president of business operations group and regulatory affairs at the Edison Electric Institute, a trade association representing investor-owned electric utilities.

This time could be different, he said. Regulators are learning from grid reliability shortcomings during bursts of cold weather when natural gas flows both to power plants and to directly heat homes and businesses, as was the case in 2014 and 2018.

“I don’t want this to collect dust,” Moeller said of the NAESB report. “There are lives at stake.”