FERC acted to revamp the entire U.S. transmission grid to prepare for extreme climate threats and face the challenge of growing power demand – including for natural gas-fired generation – via a rulemaking that outlines how to plan and pay for facilities. Still to come are the legal battles.
The Federal Energy Regulatory Commission on Monday issued Order No. 1920, which it said marked the first time in more than a decade that it had addressed regional transmission policy (No. RM21-17-000). The “1920” recognizes the year that Congress passed the Federal Power Act, which created the precursor agency to FERC.
“Our country is facing an unprecedented surge in demand for affordable electricity, while confronting extreme weather threats to the reliability of our grid and trying to stay one step ahead of the massive technological changes we are seeing in our society,” FERC Chairman Willie Phillips said.
“Our nation needs a new foundation to get badly needed new transmission planned, paid for and built. With this new rule, that starts today.”
FERC, acting as a minimum three-member quorum, was split in its decision. Phillips and fellow Democrat Allison Clements voted in favor, while Republican Mark Christie dissented.
How Much Natural Gas Demand?
Natural gas consumption is expected to sharply expand with the build-out of data centers used for artificial intelligence (AI).
“We are at a transformational moment for the electric grid, with phenomenal load growth from a domestic manufacturing boom, unprecedented construction of data centers fueling an AI revolution, and ever-expanding electrification,” Phillips said. “At the same time, the resource mix is at an inflection point, with aging infrastructure, economics, and state policies leading resources to retire.
“On top of all of this, extreme weather events have become the norm, and the electric grid is routinely being pushed to the brink,” the chairman said. “Yet in the face of these challenges, high-voltage power line construction has declined to a record low in 2022.”
NGI’s Patrick Rau, director of Strategy and Research, said how much natural gas consumption may grow is uncertain. However, many experts are forecasting demand to rise sharply.
“A year or two ago, the consensus seemed to be that natural gas demand for U.S. electric generation would be flattish through the end of the decade, if not down in the low single percentage digits,” Rau said.
“Not everyone” thought consumption would be flat, “but that was the consensus. Now, there is seemingly no one who doesn't agree that the growth in data centers is also a major growth opportunity for U.S. natural gas demand overall.
“What isn't clear is any consensus on the ultimate size of this opportunity,” Rau said. “I've seen preliminary estimates that the increased demand for electricity from data centers will lead to an additional 3-20 Bcf/d of demand for U.S. natural gas.”
As to what that means, Pau explained that “between 2000-2023, U.S. natural gas demand for power generation grew from 14.2 Bcf/d to 35.4 Bcf/d, good for a cumulative average growth rate (CAGR) of 4%/year during that time.
“If we add the 3 Bcf/d from the low end of the range to 2023 demand, that is just a 1.2% increased CAGR through 2030. I think the industry could likely handle that. But that 20 Bcf/d? That's more like a 7% CAGR, absolutely an accelerated pace since really the U.S. wholesale power generation market deregulated in the mid-1990s.”
In addition, Rau noted that “it is more difficult to get permits and such to build new gas-fired generation than in the past. So it would have been increasingly difficult for the industry to keep up with that historical 4% CAGR as it were, much less with a massive increase in expected demand.”
Long-Term Planning
The draft FERC rule requires transmission providers to conduct long-term planning for regional transmission facilities and determine how to pay for them. The rulemaking “reflects tens of thousands of pages of comments, filed over the course of the past three years, from hundreds of stakeholders representing all sectors of the electric power industry, advocacy groups and state and other government entities,” FERC noted.
Under the rule, transmission operators would be required to conduct and periodically update long-term transmission planning over a 20-year time horizon to anticipate future needs. It also provides for cost-effective expansions for transmission that is being replaced, when needed, known as “right-sizing” facilities. States would play a “pivotal role” throughout the process of planning, selecting and determining how to pay for transmission lines.
“We need to seize this moment,” Phillips said. “Over the last dozen years, FERC has worked on five after-action reports on lessons learned from extreme weather events that caused outages that cost hundreds of lives and millions of dollars.
“We must get beyond these after-action reports and start planning to maintain a reliable grid that powers our entire way of life. The grid cannot wait. Our communities cannot wait. Our nation cannot wait.”
According to FERC, the rules would reduce red tape as more alternative energy sources, including wind and solar, are brought online. The Commission also wants to address the threat of blackouts. In February 2021, freezing temperatures wrought by Winter Storm Uri knocked out power in several states and shuttered most of the grid serving Texas for days. In January, Winter Storm Elliott permeated a wide swath of the Lower 48, causing power disruptions and well shut-ins.
Grid operators today have no obligation to engage in long-term planning. Under the draft rule, the nation’s regional grid operators would have about one year to craft plans to comply.
Pros And Cons
In his dissent, Christie said the rule “is a pretext to enact a sweeping policy agenda that Congress never passed. It is intended to facilitate a massive transfer of wealth from consumers to for-profit special interests, particularly generation developers – primarily wind and solar – transmission developers, influential powerful corporations,” which includes major data center operators Amazon, Google, Meta and Microsoft.
Clements argued that the order does not abrogate state power. Instead, she said, it applies FERC authority under existing federal laws to take state policies into account as transmission is planned.
“All transmission needs are inherently influenced by state policies of all stripes,” Clements said. “They always have been, be it a zoning law, an economic development incentive, or a state renewable standard.”
Customer bills could “skyrocket if states go at it alone in ensuring grid reliability,” Clements said. “We cannot stick our heads in the sand and ignore the need for new regional transmission in this country.”
Phillips said, “I would not support this rule if I did not believe that it would lower costs in the long term for our consumers and provide more reliability for our system and for our communities.”
