By Rory D. Sweeney

HERSHEY, Pa. — From societal benefits to electricity market design concerns to regulatory issues, it’s clear that a decade of shale gas production has had a major impact that extends well beyond Pennsylvania’s borders, panelists said last week during a power industry seminar focusing on the Marcellus shale.

“It only seems appropriate to hold a discussion on competitive markets in a region that has one of the most impactful disruptions in the energy sector in recent history,” NRG Energy CEO Mauricio Gutierrez said at “Decade of Disruption: Marcellus Shale and Regional Energy Markets,” an electricity conference organized by John Hanger, a former Pennsylvania state utility regulator and environmental secretary during the early stages of Marcellus development from 2008 to 2011.

Gutierrez noted that the “shale gas revolution” has “changed the landscape” of the power generation industry and manufacturing in the U.S.

Marcellus Benefits

Philadelphia Gas Works CEO Craig White said one of the biggest advantages of shale gas for his company has been sustained low prices, which have allowed for investment in infrastructure.

“The biggest problem we had [before] is prices would spike above oil,” which reduced demand, White said. Low prices have allowed his gas delivery utility to replace aging distribution pipes while still lowering customer rates.

While shale gas has been an “unequivocal win for retail consumers … it’s also been a win for electric power customers,” said Christina Simeone, director of policy and external affairs for the University of Pennsylvania’s Kleinman Center for Energy Policy. “The electric power sector is really where prices dropped the most.”

Simeone reviewed the findings from her study on shale gas development that showed how a “Pennsylvania gas discount” has expanded low-cost gas-fired generation. (See related story, Study: Pennsylvania ‘Discount’ Spurred Spike in Gas-Fired Generation.)

“The electric power sector is now the natural gas industry’s No. 1 customer both in Pennsylvania and nationally,” she said.

Gas Role in Decarbonization

Increased reliance on gas is leading the power sector down the right path for decarbonizing the country’s economy, according to Risky Business Project research reviewed by the World Resources Institute’s Karl Hausker.

By transitioning energy consumption from fossil fuels to electricity, decarbonizing electricity production, and finally driving through any efficiencies developed along the way, the U.S. can reduce carbon dioxide emissions by 80% by 2050, Hausker said. But generators needn’t worry about betting the farm on renewables. If done correctly, it’s “an incredible growth opportunity for the electric power sector,” he said.

“It’s crazy to shut down a safe nuclear plant if it’s producing at a reasonable cost,” he said. “We are still [projected to be] using a lot of natural gas in 2050. … It is a key bridge fuel.”

While the Risky Business Project plan calls for hundreds of billions per year in infrastructure spending over the next 30 years, Hausker said the impediments are largely political, such as opposition to siting substantially more generation and transmission infrastructure.

“Technologically, we can do this. … Economically, the cost is manageable,” he said. “We really need to put the pedal down hard and really come up with better business models. … If you’re serious about [addressing] climate change, we have to build out the power sector, so please, tamp down the NIMBYism.”

The plan also “needs to be resilient in the face of falling fossil fuel prices,” he said, because International Energy Agency modeling indicates that by 2050, oil and coal prices will drop by 40% and gas by 33% compared to reference prices.

“Whatever we do, we’re going to need to expand the transmission system a lot too,” he said.

While speaking on a separate panel, ISO-NE CEO Gordon van Welie contended that expansion is more a challenge on the pipeline side than the wires side in his region.

“Quite frankly, it’s not likely. We’ve got as much pipe as we’re ever going to see in New England,” he said. “But for the fuel security issue, we’ve actually been a pretty reliable grid. … There’s hardly any congestion left in New England.”

Pennsylvania Public Utility Commissioner Andrew Place supported decarbonizing through the electricity industry. “If we are going to tackle our climate goals … the best way to do that is through our energy markets,” he said.

Decarbonizing the Industry

Who will lead the effort to decarbonize generation remains to be seen. As panel costs have plummeted, solar arrays combined with energy storage systems “can actually beat” gas-fired generators on price alone without factoring in renewable energy credits (RECs), Community Energy CEO Brent Alderfer said. The issue, he said, is getting long-term power commitments. “For some reason,” gas plants have been able to secure long-term investment based on short-term price signals while renewables have not, he said.

“The only folks that have taken a generation facility and turned it into what Facebook wants, which is a 15-year delivered power renewable contract, are cost-of-service utilities.”

Another panel discussion featured a debate on recent state and federal actions to promote large-scale, zero-emission production from nuclear plants.

NRG’s Abe Silverman argued that states, including Illinois, New York and — as of last week — Connecticut, have committed more than $10 billion to support aging nuclear generation that is too expensive to clear energy auctions, while new renewable development could produce the same power for half the price. He called for a process to identify the desired attributes (such as zero emissions) and value it so competitors can develop novel solutions to address them.

“Let’s compete for carbon production, not just hand it out on a no-bid contract,” he said.

Kathleen Barron of Exelon, the beneficiaries of zero-emission credit (ZEC) programs in Illinois and New York, argued the inverse, calling ZECs “short-term programs designed to bridge the gap” for states to develop carbon policies.

“It’s cheaper to keep the current fleet going than it is to build new renewables,” she said. “They are competitive [in markets] if you factor in the cost of the avoided emissions.”

Van Welie said he supported ZEC programs.

“It’s about jobs. I don’t know how you solve that problem through market design,” he said. “The New England states want to control the speed at which they go down the path of decarbonization. Given all the constraints on the system, that’s a pretty innovative outcome.”

PJM CEO Andy Ott reiterated his RTO’s position that subsidies suppress prices in competitive markets.

Where RTOs Fit

Ott and van Welie mutually opposed any single-solution federal mandates, such as the price supports for coal and nuclear units recently proposed by the Department of Energy. (See RTOs Reject NOPR; Say Fuel Risks Exaggerated.)

“It’s not going to be productive for us to be forced to work on Andy’s problem or for Andy to be forced to work on our problem,” van Welie said. “We’re not going to build more coal in New England, so having a discussion about building more coal in New England is a pointless exercise.”

“The issues we’re facing are unique to our fleet. The issues Gordon’s facing are unique to his fleet,” Ott said.

The two CEOs agreed that the solution is defining and valuing attributes. PJM has run into problems posting negative prices to reduce wind production when there is oversupply because it harms large, inflexible baseload units dispatched earlier in anticipation of upcoming demand spikes. The RTO has proposed defining a “load following” attribute for the ability to adjust output as necessary and pay units to do so.

“What that does is it opens up that market,” Ott said, to “surgically” address the issue rather than with the “sledgehammer” of negative prices.

Completing Deregulation and the Promise of Technology

Pennsylvania’s deregulation 20 years ago was just the first step, said Jim Steffes, executive vice president for North American corporate affairs at Direct Energy.

“It wasn’t about design in 1997. It was about stranded cost recovery for utilities,” he said.

With consumers now holding increased technological power, such as through smart meters and other ways to monitor and control power use, they are much better equipped to engage directly with their retail supplier. For example, smart thermostats have been shown to reduce usage by 10%, Steffes said, and “it’s not forced conservation.” Yet, incumbent utilities maintain control of the customer interaction.

“Why do we still have this irrational, noncompetitive player in the market?” he asked. “The fact that we don’t know even know if they’re competitors or not creates a barrier.”

“We really have to get the utility out of the place of being the gatekeeper,” said Mike Starck, general manager of NRG’s northeastern retail business.

NRG’s Gutierrez had kicked off the conference on that issue, calling for four reforms in Pennsylvania by 2020. He argued that all “business transactions,” such as customer switches and sharing meter consumption data, should be standardized and routed through PJM, and that competitive suppliers should be allowed to compile all fees and send customers a single bill that includes utilities’ distribution charges, an idea known as supplier-consolidated billing. Currently, only utilities have that ability and suppliers must send a separate bill if they want to bill directly.

“It is essential to unlocking innovative payments and bundled products,” he said. “Consumers demand simplicity and convenience. They want a single energy bill that includes not only the energy needed to keep their lights on and houses warm, but also the other products and services that they need provided to them, whether it’s home security or energy efficiency devices.”

Gutierrez also called for defining and valuing necessary generator attributes and adjusting utilities’ tariff structures to prohibit them from offering retail products or generation.