Electricity Markets

APPA, APGA urge President Biden to declare a natural gas supply emergency, cap prices

The American Public Power Association (APPA) and the American Public Gas Association (APGA) recently urged President Biden to use the Natural Gas Policy Act (NGPA) to declare a natural gas supply emergency and to authorize the Secretary of Energy to exercise delegated authority under section 302 of the act to cap the price for purchases of natural gas from producers of natural gas or other persons to the extent authorized by the NGPA.

In their Feb. 19 letter to Biden, APPA and APGA noted that the recent cold weather in the Midwest and Texas has driven high demand for electricity while at the same time supply (power generation) has been constrained due to natural gas well and pipeline freezes, wind turbine freezes, and freezes/cold weather impacts at power plants themselves.

“As a result, many public power customers in Texas have been without power as their local providers have been forced to ‘shed load’ (reduce demand) to help the entire Texas electrical system (known as ERCOT) remain stable and functioning,” the letter said.

In addition, natural gas prices, which had hovered around $3/MMBtu, skyrocketed to upwards of $300/MMBtu and even higher in some cases, APPA and APGA pointed out.

“With demand for natural gas rising in response to the cold temperatures, our members had no choice but to purchase gas at the inflated prices or pay even steeper penalties to ensure that our members could meet their communities’ energy needs,” the letter said.

“This situation has also driven up wholesale gas and power prices in adjacent areas of the country, into the Southwest and Southeast.”

Within ERCOT and the Midwest markets known as the Southwest Power Pool (SPP) and the Midcontinent Independent System Operator (MISO), prices for power purchased on the wholesale market in these regions have sharply risen over the last several days, APPA and APGA pointed out.

Natural gas powers a significant amount of the baseload generation in the regions impacted, and inadequate supplies of natural gas have caused the price of this critical fuel to skyrocket.

“This, in turn, has impacted the spot prices of electricity, compounding the financial burden on many of our not-for-profit utility members. While these utilities have hedging strategies and reserves in place, the magnitude of the spike has outpaced these risk management tools in some cases,” APPA and APGA said.

“For example, natural gas for one public power-owned power plant cost $78 million for four days of supply -- whereas fuel had cost only $18 million for all of 2020. If no relief is provided, these staggering costs will ultimately have to be borne by utility customers at a time when many have lost their jobs or are otherwise struggling because of the COVID-19 pandemic.”

Given the magnitude of this situation, the groups urged Biden to consider using his authority under section 301 of the NGPA to declare a natural gas supply emergency and to authorize the Secretary of Energy to exercise delegated authority under section 302 of the NGPA to cap the price for purchases of natural gas from producers of natural gas or other persons to the extent authorized by the NGPA.

Inadequate supplies of natural gas threaten the availability of the fuel for high priority uses, including electric power generation, the groups said.

“Limiting the price of gas to a fair and equitable level, we believe, would assist in meeting the requirements of such high priority uses. While the natural gas supply emergency authority under the NGPA has been used sparingly, we believe this financial crisis is significant enough to merit such action.”

In the meantime, public power and public gas utilities “are focused on keeping the lights and heat flowing and taking steps like conservation measures to ensure consumers have the energy they need. They are also communicating with their customers about ways they can save energy (to prevent future curtailments in the case of generation); stay safe while using generators and space heaters; and avoid scams,” APPA and APGA noted.

The letter was signed by Joy Ditto, President and CEO of APPA, and Dave Schryver, President and CEO of APGA.