Thanks for the suggestion @thegulshankumar. The ” Settings > Media > Generate JPEG files in addition to WebP” configuration is not enabled by default as it created a WebP version for every image version (include size variations), along with the JPEG version. In some cases this can eat up server resources.
With regards the issue you mentioned with the Web Stories plugin, I assume this is the same issue as you reported in the Web Stories forums?
If so, even with the “Settings > Media > Generate JPEG files in addition to WebP” option unchecked and the “Settings > Performance > Enable WebP uploads” configuration checked, the original JPEG of any image is also uploaded, just without the image size variations (as indicated in your screenshot with the original jpg present – the only JPEG present). From my testing, the Web Stories could does use the WebP version of the image, including after cropping any selected image to suit the post image size. The Web Stories team can confirm that WebP images are used, or assist in cases whereby only your JPEG image is available.
Let me know if you have any questions with the above, or if the issue you’re facing with Web Stories is not the above and I can check this further.
Thanks for your kind response. I will update in future if I come up with step-by-step process to reproduce the entire issue of broken images.