Natural Gas, Grid Reliability and Respecting Markets

Mark Green
Posted October 17, 2017

It’s unclear what the Federal Energy Regulatory Commission (FERC) will do with U.S. Energy Secretary Rick Perry’s request that FERC alter the electricity marketplace in favor of certain generating facilities – a proposal that by design would favor some energy sources over others. A clue, perhaps, from FERC Commissioner Robert Powelson, speaking to the American Association of Blacks in Energy (AABE) this week:

“The FERC does not pick winners and losers in the market, and I stand behind that. I think the moment we kind of put our thumbs on the scale is the moment we bastardize markets, and that’s not our sweet spot.”

Powelson said FERC will follow its regular processes while considering Perry’s directive, providing all stakeholders with:

“… peace of mind that we will look at these markets, we’ll look at issues like reliability and we’ll continue to have this conversation and really … do what we do good, what I call the ‘boring good,’ and that’s reliability – reliability in keeping the lights on and keeping power prices at an affordable rate.”

Which is as it should be. Reliable electricity service to consumers is paramount, and natural gas is the definition of reliability. Natural gas-fueled generation furnishes attributes, including dispatchability, ramp rates and frequency response, that ensure the health of the modern grid. Markets, not government interventions, should determine energy sources, because markets reward innovation, encourage efficiency, work toward lower prices and benefit consumers.

Perry says his request to FERC was meant to be a conversation starter. But if it’s a conversation about government tilting the electricity market one way or another, it’s the wrong one.

Indeed, as the secretary tried to explain his FERC order to lawmakers at a House hearing last week he missed the mark when he questioned the reliability of natural gas, the leading fuel for U.S. electricity generation in 2016, and asserted that the natural gas and oil industry receives federal subsidies – it doesn’t.

Let’s talk reliability first. There’s a myth that’s being repeated in the wake of Perry’s FERC order – that natural gas supplies were unavailable during the extreme cold of the Polar Vortex in January 2014. It’s a falsehood. API’s Marty Durbin addressed the Polar Vortex-natural gas canard before the House Energy and Commerce subcommittee on energy earlier this month:

[T]hose with firm transportation contracts received their natural gas. It isn’t commonly known that the limited incidents of natural gas supply interruptions were a result of interruptible contracts, not weather-related factors. The use of these contracts was an economic decision made by generation owners, not an indication of whether or not the natural gas supply infrastructure is reliable or not, as is often implied.

Powelson, who was chairman of the Pennsylvania Public Utility Commission at the time of the Polar Vortex, to AABE:

“[L]et me start by debunking some myths. It wasn’t because of failed combined cycle gas plants. There’s a dirty little secret running around that the gas guys didn’t perform during the Jan. 6-7 timeline. I’m here to tell you, unequivocally, that is not the case.”

Yet, this myth is circulated to support the view that certain power plants are more reliable and resilient during extreme events, in part, because of on-site fuel storage, and that the government should help them remain market viable. Writing in Utility Dive, Robbie Orvis and Mike O’Boyle of the analysis firm Energy Innovation debunk the claim that underlies Perry’s directive to FERC:

Citing sparse and cherry-picked evidence that contradicts evidence cited in the [Energy Department’s] own report from earlier this summer, the NOPR [Notice of Proposed Rulemaking] claims that “fuel-secure resources are indispensable for the reliability and resiliency” of the grid. As has been demonstrated over and over again in numerous reports, including DOE’s own report issued in August, this claim is patently false.

Orvis and O’Boyle note that nearly 14 gigawatts (GW) of coal capacity – nearly a quarter of all coal capacity in PJM, which oversees much of the Mid-Atlantic electric grid – and 1.4 GW of nuclear was forced offline during the Polar Vortex. Most of these generator outages occurred because of temperatures below the operating limit of power plant equipment. A report by the North American Electric Reliability Corporation found that of the approximately 19,500 megawatts (MW) of capacity lost due to cold weather conditions, more than 17,700 MW was due to frozen equipment. Additional coal capacity was unavailable due to frozen coal piles.

Orvis and O’Boyle also discuss this year’s hurricanes that struck Texas and Florida:

Most recently during Hurricane Harvey, coal piles in Texas were so soaked with water that they were unable to be transported to the boiler at coal plants, forcing those plants to switch to burning natural gas. At other facilities, including both coal plants in Texas during Hurricane Harvey and nuclear plants in Florida during Hurricane Irma, staff had to be evacuated, forcing those plants offline. … These events and others like them prove that having fuel on hand is not an indicator of resilience. Equipment failure due to cold weather can force all types of power plants offline. Extreme weather events can force staff to evacuate, forcing plants offline. On-site fuel is useless if it can’t be transported. Having fuel on hand is not a resilience benefit.

Back to Perry. During House testimony last week, the secretary asserted that the federal government subsidizes “a lot of different energy sources,” naming “wind, ethanol, solar, oil and gas.” That’s not accurate. While wind and solar receive cash outlays directly from the U.S. Treasury, our industry doesn’t. Likewise, there are no targeted tax credits currently being used by industry. Natural gas and oil companies use legitimate tax provisions – similar to those used by other business sectors.

We’ll put it another way: Market forces are driving the increased use of natural gas in power generation, and natural gas-fueled generation is providing reliability and resiliency to the electric grid while lowering costs for consumers and playing the lead role in driving down U.S. carbon dioxide emissions from electricity generation. And natural gas does it without subsidies.

The larger point is that electricity markets do not need government interventions. In connection with that, we’ve also discussed proposed nuclear bailouts of one kind or another in Ohio, New Jersey, Pennsylvania and Connecticut, where polling has shown voters in strong opposition.

Once again: Let markets choose. From Durbin’s House testimony:

Market forces, public policy and environmental policy are driving the ongoing shift in our nation’s power generation mix. Natural gas generation is an important and growing part of that mix. Collectively, the environmental advantages, reliability and affordability of natural gas generation are unmatched by any other form of power generation. Natural gas has earned its market share in the electricity generation space and has provided, and can continue to provide, reliable, low-cost fuel for electricity generation and cost savings to consumers.