Mid-Atlantic power generators Thursday opposed a suggestion that generators be mandated to commit to firm pipeline capacity for the delivery of natural gas. At the fifth and final technical conference on the coordination of natural gas and power markets, some generators also said they viewed shale gas as a doubled-edged sword for the Mid-Atlantic region, supplying it with abundant, low-cost supplies while at the same time putting pressure on an already over-taxed pipeline infrastructure.

"As the shale production has come [online], that's been a great benefit to the U.S., but it's also taking up capacity as more generation comes on. I'm concerned there's not the pipeline infrastructure to support it, and I don't know that we can get it buily in time," said Marquerite Mills, vice president of fuel procurement at American Electric Power, during the technical conference sponsored by the Federal Energy Regulatory Commission in Washington, DC. The previous conferences explored coordination issues in New England, the Southeast, the West and Midwest (see Daily GPI, Aug. 29, Aug. 21, Aug. 24).

In addition to her concerns about the pipeline infrastructure, she called on interstate gas pipelines to initiate "hourly nomination cycles" and for regional transmission organizations to align their timing for awarding bids. Mills said another challenge is that the PJM, one of the two organized power markets in the Mid-Atlantic region (the other one being New York ISO), does not allow generators to recover the reservation charges associated with firm transportation contracts. This is why many generators are reluctant to sign firm transportation contracts, which pipelines require before they will build new projects.

"As long as the paradigm is such that power generators cannot recover the fixed costs associated with those transportation capacity contracts, there really is no incentive for them to hold it because otherwise they're at risk," said Stanley Chapman, senior vice president of marketing and customer service for NiSource Gas Transmission & Storage. He suggested that generators be incentivized.

David Ciarlone, manager of global energy services for Alcoa and recently named chairman of the Process Gas Consumers Group, expressed concern that enhanced incentives could affect the price of shale gas. "If we get it wrong and turn the prices and incentives upside down and we drive the manufacturing jobs out of this region...we're doing ourselves a great disservice," he said. Shale gas "gives us a hope of a manufacturing renaissance. We are really excited about that in Pittsburgh...We just have to get this infrastructure and cost of it and the allocation of those costs right, or we can strangle this renaissance before it has a chance to take hold."

John Scarlata, vice president of gas supply at PSEG Energy Resources & Trade LLC, painted a more favorable picture of the gas pipeline system serving the Mid-Atlantic region. "We have found that the pipeline infrastructure is very good and is getting much better with the advent of the shale expansion...With the infrastructure improvements, we have seen a real basis collapse in the region, which I think is overall probably good for the consumer."

He said the infrastructure that will be built on Tennessee's 200 Line to get shale gas out of Pennsylvania is going to be "very good" for generators served by the pipeline system.

Scheduling problems with gas pipelines are more pronounced in the NYISO than in the PJM because the region is more dependent on natural gas. Of the 142,629 GWh of generation that was produced in the NYISO in 2010, 33% was gas-fired. In contrast, coal accounted for 54% of the 832,371 GWh of power generated in the PJM in 2010, according to a FERC report on "Electric and Gas Infrastructure" in the Mid-Atlantic region.

The residential and commercial sectors currently are the largest consumers of gas in the Mid-Atlantic region, but gas usage in the generation sector is increasing to the point where it is expected to be the largest consumer of natural gas by 2020, FERC said. Shale gas will meet most of the region's gas needs by 2020, offsetting declines in production of conventional and tight sands production in the Mid-Atlantic.There will be an increase in pipeline capacity into the region from the Southeast and Marcellus Shale areas.

Coordinating the scheduling deadlines between the power and gas markets remains one of the chief concerns of power generators. Some conference participants advised that good lines of communication between pipelines and generators was the solution. "Our experience has been as long as you got really good communication with pipelines and LDC [local distribution company] pipelines, we really haven't had much of a problem. We can balance. They've [pipelines] given us a phone call saying 'hey, we think you've been drawing a lot. What do you think [is] going to happen in the next couple of hours, so we might route some gas in,'" said Kevin Telford, lead trader at Exelon Corp.

"Talk with your pipeline guys, talk with your LDC folks and develop strong relationships with you suppliers."

Talking to the pipelines, LDCs, marketers and producers who hold firm transportation capacity, as well as committing to firm pipeline contracts and reliable gas supply, "are good things for generators to do" to ensure reliability, said Gary Sypolt, CEO of Dominion Energy.

Moreover, the electric market needs to plan ahead by more than three years, he said. "That's not really enough...to commit to a long-term contract and it's something I would encourage the electric markets to think about."

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