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FERC seen as key to whether grid resilience push spurs gas development


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FERC seen as key to whether grid resilience push spurs gas development

Whether the U.S. Department of Energy's push for electric generation fuel resilience dampens gas demand or inspires gas infrastructure investment will depend on how the Federal Energy Regulatory Commission interprets the directive, mainly seen as supporting baseload coal and nuclear generation.

The DOE directed FERC to make sure the U.S. power grid puts a higher value on resilience and operators' ability to rebound from major problems. The department specifically highlighted the value of having a 90-day onsite fuel supply, a criterion that is much more readily met by coal and nuclear generators than gas-fired ones.

"In our view, that's a starting point in the discussion," Michael Sloan, a principal with the research and consulting company ICF International, said in an Oct. 17 interview. "Are they going to start to evaluate alternatives to the 90-day onsite fuel supply that would provide the same resiliency benefits? Nobody knows that for sure, but it's logical given the rationale behind the [DOE proposal] that they would or perhaps should be looking at the question more broadly."

For the gas industry, similar resilience might be able to be achieved through requirements for firm pipeline capacity, perhaps on multiple systems; interconnects with multiple systems; or direct access to local gas storage or local gas production, Sloan said on the sidelines of the LDC Gas Forums Rockies and West conference in Broomfield, Colo.

Under a scenario in which FERC and the DOE explore those types of gas resilience options, the industry would probably need to invest in infrastructure redundancy that would help the system cope in the event of a catastrophic incident that takes a significant chunk of infrastructure offline, Sloan said.

"The pipeline companies may see an incremental demand for new investment, and it presumably would be recoverable through rates," Sloan said. "That would give them an opportunity to expand their systems, but it's going to increase the costs to everybody else."

How much gas infrastructure investment the DOE and FERC would consider justified depends heavily on how the DOE evaluates the national security benefits of having a more resilient grid, Sloan added.

Will Brown, vice president of business development at Kinder Morgan Inc., expressed confidence that the gas system's resilience would be able to meet the standards being laid out at the federal level. Between storage and keeping pipes pressurized with adequate gas to meet customer needs, pipeline operators have historically been able to guarantee highly regular supply access, Brown said.

"I think natural gas has extremely good reliability. ... It's the only fuel that's compressible. It operates at different pressures," Brown said on the sidelines of the LDC Gas Forums conference. "When you have line pack and you have natural gas storage, it's awfully hard to argue its reliability. It's not to say that the natural gas industry operates risk-free. It doesn't, but it's got a fairly good track record."

If FERC takes the DOE's interest in onsite fuel storage more literally and begins ensuring that coal and nuclear generators are compensated for their ability to maintain physical fuel supplies nearby, the policy will likely stave off expected coal and nuclear facility retirements, Sloan said. While keeping coal and nuclear facilities online would not necessarily change the degree to which existing gas plants are dispatched to provide power, it would eat into gas' expected gains in the power sector.

"This proposed structure changes the economics of the retirement of the coal and nuclear plants. That would keep those plants online. That would reduce the need for incremental generating capacity," Sloan said. "In the long term, that could lead to a significant reduction in new natural-gas-fired generation capacity, and that will lower the amount of natural gas demand."

For FERC to exclude gas from the resilience discussion would likely require the agency to dive into federal vs. state regulatory issues, Sloan said. California, for instance, has no coal-fired generation and little nuclear power.

"How can you ensure the resiliency of the California power generation market under the current proposed rules unless you start getting into either the questions of natural gas pipeline resiliency or you start pushing the California power grid in a way that's completely counter to where the state has been headed for the last 10 years or more?" Sloan said.

Further complications may arise for regions that are both trying to curb greenhouse gas emissions and are disinclined to add more pipelines. "That's a scenario in which I would expect certain states would be active in legal review of any FERC policies that created incentives for market activity counter to where they're trying to take their states," he said.