1. Bluff. Tell her to see a doctor, and ask her to have the doctor to talk to you. Tell you you'll ask for detailed diagnose and basis for damages. Tell her if she sues you, you bring in the gas company as third party defendant. It's the gas company's negligence, not yours. Tell her gas company has expensive lawyers.
But privately, did you paid for gas in this place before gas company cut it off? If you only left the gas account pending and never paid anything, you bear some responsibility. Because you rented the unit out knowing that the gas account wasn't set up properly, you are liable for any damage resulted from living with no gas. You could drag gas company in the law suit, but it doesn't look pretty on you.
2. Yes, you can refuse to renew the lease. New lease is a new contract, either party can refuse to enter into a new contract.
I think she just want to negotiate to renew the lease. Her tactic might be crude but you won't lose face if you negotiate with a firm hand. Increase some rent in exchange for her to stay, then find a mutual release form ask her to sign so that she won't sue you in the no-gas incident.
