NERC Frets About Some Regions' Over-Reliance on Gas-Fired Generation

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The North American Electric Reliability Corporation (NERC) (Atlanta, Georgia) is increasingly concerned about the Power Industry's over-reliance on natural gas in several U.S. regions, a NERC official told a transmission conference in Denver last week. Asked how worried NERC was about this trend, using a scale where 1 was "who cares?" and 10 was, "holy crap, the sky is falling," Elliott Nethercutt, a senior technical advisor at NERC, said the organization's concern was "at least a 7 on a scale of 1-10" for certain regions.

Nethercutt spoke June 29 at the Fifth Annual TransForum West conference, which was organized by PennWell Corporation (Tulsa, Oklahoma). He said NERC was most concerned about over-reliance on gas-fired power in four regions: New York, New England, Southern California and the Electric Reliability Council of Texas (ERCOT).

All four of those regions depend on gas-fired power for at least 50% of their electricity. "It's scary how some regions are depending so heavily on gas-fired power," he said in an interview at the conference. "Low gas prices can't continue forever." Looking forward, he said NERC was concerned about the potential for a gas price shock that could come "after gas exports begin in earnest or if environmental regulations are imposed on hydraulic fracturing."

Nethercutt pointed to the lengthy leak at the Aliso Canyon gas-storage facility in Southern California as another example of how a disruption in the availability or cost of gas could have far-reaching repercussions on power markets. Last month, as the summer heat started building in Southern California, some utilities warned customers there could be power outages because not enough gas could be brought into the region's gas-fired power plants. "Most California power plants (17 in the Los Angeles basin) generate electricity through use of natural gas," reported the Riverside Press-Enterprise. "Most of that gas is imported from points east. About 86 billion cubic feet of it had been injected into an underground reservoir at Aliso Canyon, the second largest storage facility in the nation." But that facility developed a leak in late 2015, and has still not returned to service.

The NERC official also told conference attendees the organization was concerned about another "Polar Vortex" hitting the U.S. The last Polar Vortex, in early 2014, sent power prices soaring in the Mid-Atlantic area, to a peak of $2,000 per megawatt-hour (MWh), 20 times the typical peak price of $100 per MWh. For more on that, see February 24, 2014, article--New PJM Bal Day Application Manages Trader Price Risks in Extremely Volatile Energy Market.

"We are concerned about the potential impact on the electric system because there's even more gas-fired power today than there was in 2014," Nethercutt told about 75 attendees at the TransForum West event. "NERC is spending more time and effort these days forecasting how extreme weather events" could affect the generation and transmission markets.

Over-reliance on gas-fired power becomes even more problematic if gas pipelines can't get built to bring the fuel to generators, he noted. New England and New York, in particular, have had trouble permitting and constructing gas pipelines. Recently, Kinder Morgan Incorporated (NYSE:KM) (Houston, Texas) abandoned efforts to build the Northeast Energy Direct (NED) pipeline, a large proposed pipeline that would have brought gas from the Marcellus Shale to upstate New York and New England. For more on that project, see April 26, 2016, article--Tough Times for Pipelines: Two Major Northeast Projects Hit Roadblocks. For a broader view of the challenges of siting electric or pipeline projects in the Northeast, see April 29, 2016, article--Low Commodity Prices Kill, Stall North American Pipeline Projects.

"It takes an average of three years to site and build a new natural gas pipeline, five years to site and build a new natural gas combined cycle generator and at least 10 years to build a new electric transmission project," Nethercutt told the conference. "In recent years, actual gas-fired capacity additions have outstripped our forecast, making a difficult situation in some regions that much worse. The industry has made a lot of progress, but the problem of over-reliance is not going away."

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