Association for Public Policy Analysis & Management

Episodes of extreme cold in the United States in 2014, which affected the ability of delivery infrastructures for natural gas and coal to supply electric power plants, have convinced power grid operators and their regulators that the reliability of fuel delivery systems is a major concern for maintaining reliability of the bulk electric grid. The rapid transition to natural gas as a power-plant fuel has reinforced this concern as the natural gas transmission system is increasingly viewed by power grid operators as a potentially significant point of failure for reliable power supplies. Analyses by two power grid operators (PJM and ISO New England), meanwhile, have contributed to a policy narrative surrounding technology diversity and fuel security in electric power. The focus of this narrative is the conclusion that increasing dependence on a single fuel or technology in the power grid (principally natural gas) has serious implications for electric reliability even though historical data shows that fuel delivery interruptions have virtually never impacted electric reliability. There have been two attempts at a regulatory response to the notion of “fuel security.” The first is an initiative by the FERC to promote increased operational coordination between power grid operators and natural gas transmission operators. The second was a failed initiative from the DOE under which FERC would have allowed regulated cost recovery for power generation facilities meeting a “fuel security” criterion. Lacking market mechanisms to value diversity or fuel security explicitly, power grid operators and policymakers have turned towards large-scale infrastructure hardening as a preferred mechanism to reduce the risk to electric reliability. Lost in the policy discussion is the historical rarity of the extreme weather conditions of the winter of 2014.

The focus of the policy narrative on deliveries of fuel supplies to large central-station power plants via expansion of the natural gas transmission system yields a highly expensive planning proposition that may actually make fuel deliveries less robust under some circumstances. We use a modeling tool called the Combined Electricity and Gas Expansion framework to identify infrastructure needs and costs under a policy framework focused on ensuring fuel deliveries versus an alternative policy framework with an objective on maintaining electricity and heating services. For the Northeastern U.S., implementing a fuel security policy would require an expansion in natural gas infrastructure that is 40% larger than that to which gas and electric ratepayers have already committed. A policy objective focused on delivered services, however, tends to favor more distributed electricity and natural gas storage at a much lower economic cost. This conclusion suggests a need for FERC and other regulatory entities to consider innovations in coordinated infrastructure planning, not just coordinated operations.