FERC summer assessment finds adequate electricity supply in normal weather conditions

U.S. markets are expected to have sufficient electricity capacity to maintain reliable operations this summer under normal weather conditions, according to the Federal Energy Regulatory Commission’s (FERC) 2022 summer assessment.

However, FERC notes that extreme weather events could pose operational challenges, particularly in some parts of the country.

“Today’s report forecasts an additional 30 GW of capacity this summer compared to last summer. But the challenges outlined in the summer assessment also demonstrate the urgent need for the commission to meaningfully advance initiatives that will better ensure electricity markets are ready to meet reliability challenges head-on,” FERC Chairman Rich Glick said. “The commission’s work to facilitate transmission infrastructure, modernize electricity markets, and safeguard our nation’s electric infrastructure from reliability threats has never been more important.”

In the assessment, there were several key findings. There is a growing demand for natural gas, including liquefied natural gas (LNG) exports. It is expected to outpace the supply growth, with natural gas prices expected to be higher than last summer. Specifically, the Henry Hub futures contract price averages $7.06/MMBtu for June 2022 through September 2022. Total U.S. dry natural gas production is expected to rise this summer by 3.4 percent compared to summer 2021, while total natural gas demand is expected to rise 4.8 percent.

FERC is also forecasting higher prices in wholesale electric markets this summer due to hotter temperatures, slightly increased electricity demand, and higher natural gas prices. Futures prices for major electricity trading hubs are between 77 percent and 233 percent higher than last year.

However, even with higher demand, electric markets are expected to have sufficient capacity to maintain adequate reserve margins and electric grid reliability this summer during normal conditions. However, extreme operating conditions such as major heatwaves, wildfires, hurricanes, and other severe weather events may stress operations, with the greatest risks in the West, Texas, and parts of the Midwest.

Finally, the assessment indicates that any additional impact on energy prices hinges on how the war in Ukraine progresses and how market participants adjust to supply and demand changes. For example, U.S. energy sector participants may continue to expand production and export supplies needed globally, such as LNG.