Power Generation Game of Thrones

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AdobeStock 135105080

For the first time in over five decades, natural gas has surpassed coal as the United States’ leading fuel source for electricity generation. Much like the shale gas revolution that prompted it, this historical change has not happened overnight. This momentous turning point has also led to a massive fight over the future of power generation and the question of which resource will be the next king of American power.

Perhaps the most significant evidence of this power struggle is occurring in the coal-heavy battleground states of Ohio, Pennsylvania, and West Virginia’s Appalachian Basin, where the prolific Marcellus and Utica shale gas production has resulted in lower natural gas prices worldwide. As politicians scheme to tilt the scales toward refurbishing aging and uneconomical power plants, this power generation “game of thrones” is reaching a fever pitch. With important midterm elections around the corner, it’ll be interesting to see how this fight plays out.

Currently, there is over $21 billion allocated for gas-fired power plant projects in various stages of development throughout Ohio, West Virginia and Pennsylvania. These projects combined will generate more than 23 gigawatts of reliable, efficient and clean electricity for over 16 million homes when completed, and will be equivalent to 105 million solar panels and 11,500 wind turbines, based on Department of Energy (DOE) figures.

These combined cycle plants typically require at least 100 million British thermal units (Btu) of natural gas per day. That would collectively equate to 2.7 billion cubic feet per day (Bcf/d) of natural gas if all of these projects planned for the region go into operation. The Marcellus and Utica shales are producing 26.7 Bcf/d, according to new DOE data, meaning that concerns surrounding fuel source reliability for these plants should be a nonstarter, considering the ample supply of natural gas. The number of pipelines already in the works will deliver more than 17 Bcf/d of Marcellus and Utica natural gas to new power plants and other end-users. This is all happening at no cost to the taxpayer or electricity customers. In fact, it’s because of these private-sector capital investments that we can keep the lights on, and do so without skyrocketing electricity costs.

The cherry on top of it all is the fact that the Appalachian Basin led the nation with 57 million metric tons of carbon emissions reductions from 2005 to 2015, 88 percent of which were from the power sector. Put another way, the Appalachian Basin has accounted for 21.5 percent of total U.S. carbon emissions reductions for electricity generation since 2005. But not everyone is excited about this win for the economy and the environment. Unable to compete, owners of aging and uneconomic power plants have made sweeping requests for bailouts at the federal and state levels, including additional subsidies and the ability to pass surcharges to electric customers. An analysis by Energy Innovation estimated that federal bailouts would only benefit a handful of companies who lobbied the federal government last year and would raise consumer energy costs by an estimated $2.4 billion to $10.6 billion annually. In fact, 80 percent of the subsidies would go to only five companies, including Ohio-based FirstEnergy Corp., which is slated to retire its uneconomic and aging coal and nuclear assets in Ohio, West Virginia and Pennsylvania.

This bailout practice has been going on for years in Ohio, as companies such as FirstEnergy have simply passed the costs of their faltering business models to their customers. In addition to these surcharges, the owners of Ohio’s failing power plants are asking state lawmakers for the ability to impose more surcharges on captive customers, resulting in pending legislation to bail out nuclear and coal power plants.

A similar scenario occurred in Pennsylvania, where a proposal to save uneconomic nuclear plants would have cost consumers an estimated $3.9 billion extra in the form of higher energy bills. In West Virginia, the debate differs somewhat in that very few natural gas power plants have been built or proposed, largely because the permitting process in West Virginia is onerous, and companies such as FirstEnergy continue to hinder competition from new and more efficient power sources.

So, where does the power generation game of thrones stand now? Luckily, the Federal Energy Regulatory Commission (FERC) announced last month that they would not move forward with these federal bailouts and subsidies.

Ohio lawmakers are currently deliberating state-level bailouts in Columbus, but Republican Gov. John Kasich has been staunchly opposed to them, openly acknowledging that the private sector is driving natural gas power generation in the Buckeye State. As he cut the ribbon on the new Oregon Clean Energy Center last summer, Kasich said, “It’s bringing investment, competition and, most important, lower prices for consumers.”

Members of the Pennsylvania General Assembly said last month that there is “no appetite” for bailouts, noting that the job losses expected from the retirement of aging and uneconomic plants would be offset by shale-driven opportunities such as Shell Oil Company’s multibillion-dollar petrochemical cracker plant. State Rep. Rob Matzie (D-16) correctly stated, “If we lose those jobs, any new jobs gained out of the [Shell] cracker plant will get subtracted. Those are family sustaining wages, and a lot of people working there have made a great living for the better part of forty years. As policymakers, we have to keep that in mind.”

And in West Virginia, Secretary of Commerce Woody Thrasher had sharp words for the West Virginia House and Senate, making it clear that the state has not been friendly to natural gas power plants, as Ohio and Pennsylvania have enjoyed 90 percent of the regional investment from combined new cycle gas plants. This has resulted in billions of dollars flooding into neighboring states, and utility rates for West Virginians have surged higher. After touring a new Ohio natural gas power plant, Gov. Kasich perhaps said it best: “There’s always a tendency to slip back into yesterday. This represents tomorrow.” Indeed, clean-burning natural gas certainly does represent tomorrow — a win for the consumers, the economy and the environment.

 

About the author: Jackie Stewart is a Senior Director in the Strategic Communications segment at FTI Consulting, Inc., and is part of the segment’s Public Affairs practice and Energy and Natural Resources industry practice. Based in Ohio, she is also State Director for Energy in Depth. Stewart has more than a decade of experience in government and community relations, public policy and event management.

 

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