Senate Hearing: Natural Gas Development Has Major Impact On PA Energy Markets

The Senate Environmental Resources and Energy Committee and Republican Policy Committee Wednesday held a joint hearing on the Pennsylvania’s natural gas industry and natural gas-fired electric power generation.

David Spigelmyer, Marcellus Shale Coalition, said since unconventional natural gas development began in 2008, electricity prices have decreased by more than 50 percent and natural gas prices for end-use customers have fallen 60-70 percent, resulting in an average annual savings of more than $1,200 per household.

In Pennsylvania alone, Spigelmyer said, well over $10 billion in private investment capital is being spent on new or converted natural-gas fired electric generation facilities, representing close to 15,000 megawatts on line by 2020.

Spigelmyer said manufacturers have benefitted from the the influx of a low-cost, local energy supply has enabled them to expand and grow their business.

One of the most impressive – and unique – examples of this is the Procter & Gamble plant in Mehoopany, Wyoming County where the company manufactures an array of products – from diapers to paper towels – all from their own Marcellus wells.

As another example, Spigelmyer said Montreal-based paper manufacturer Domtar Corporation announced that it would be upgrading its Elk and Clearfield County facilities, converting their energy supply from coal to natural gas.

This move that enhanced the efficiency of both facilities was a major contributing factor to the company announcing that it would maintain its Pennsylvania presence, equating to 438 jobs saved in the Commonwealth as a result of our local and abundant energy supply, he said.

He noted one of the chief causes behind Pennsylvania’s inadequate pipeline infrastructure is permitting challenges at the Department of Environmental Protection.

For a simple earth disturbance permit that per DEP’s own policy should take less than a month to issue, Spigelmyer said some regional offices of the department take in excess of a year to process. It is important to note that, in some regions of the Commonwealth, permitting timelines are manageable, he added.

“This clearly suggests that permit applicants can meet permitting standards when they are applied fairly and consistently,” he explained. “However, unpredictability and uncertainty, as we see in some quarters of Pennsylvanian, discourages investment and drives capital dollars elsewhere.”

Spigelmyer applauded efforts by DEP Secretary Patrick McDonnell to solve the permitting issues and noted there is a pilot project to shift some of the erosion and sedimentation permit work for oil and gas operations from the Southwest Regional Office to the Northcentral Office to speed permit reviews.

He also noted the number of unconventional drilling rigs now in Pennsylvania are more than triple the number in use last year-- from 11 last summer to 35 now.

Tad Hill, President of Calpine, noted his company is the largest independent power provider in the U.S., including 1,695 megawatts of natural gas generating capacity in Pennsylvania and another 828 MW of capacity under construction.

“My key message today is that the market-driven competitive electric sector here in Pennsylvania is on a path to transition from one supported by older, less efficient and more costly power plants to one supported by newer, more efficient, less expensive and cleaner natural gas plants,” said Hill.

“While consumers are now reaping the benefits of restructured electricity markets, we see challenges on the horizon that could threaten the foundation of competitive markets,” said Hill.  “Due to various policy goals and pressure from incumbent generators, state policymakers have been increasing their efforts to impact the generation makeup in their respective states by offering subsidies to certain preferred types of generation resources.

“While these policy goals may be well intended, they nevertheless are having a significant, negative impact on the wholesale electricity markets, competitive retail markets, and ultimately the cost the consumer has to bear,” explained Hill.  “If these out-of-market efforts continue, they will threaten the continued viability of competitive wholesale electricity markets."
Sen. John Yudichak (D-Luzerne), Minority Chair of the Senate Environmental Resources and Energy Committee, challenged Mr. Hill’s claim by stating that Pennsylvania has been providing incentives to various energy resources for years with no detrimental effect on wholesale power markets.  He cited the tax breaks for Shell’s ethane cracker facility in Beaver County, the tax credit for waste coal facilities, and the state’s Alternative Energy Portfolio Standards.

Hill said in summary, there are two points he would like to leave with Committee members: first, the bulk power electric system in Pennsylvania and more broadly in PJM—while undergoing a transition—is in great shape from a reliability standpoint.

“PJM is well equipped to manage the transition. Cheap Marcellus and Utica shale gas and its associated expanding infrastructure is poised to play a much larger role than before – not only in power generation but more broadly in the state economy through various industrial efforts.

“Second, the power market is working well – as evidenced by the billions of dollars of new investment occurring here in the Commonwealth. It is incenting new investment – and in the case of older, less efficient generation, it is sending the appropriate retirement signals,” said Hill.  

“It is clear that competition yields the best results – that relying on entrepreneurialism and the free market creates more value than central planning or government picking winners and losers,” added Hill.  “Regulatory or governmental interference in functioning markets does not lead to better outcomes – we must continue to rely on the free market to efficiently allocate resources and to benefit the consumers in the Commonwealth.”

Click Here for written testimony presented.  Click Here for a video of the hearing.

Sen. Gene Yaw (R-Lycoming) serves as Majority Chair of the Senate Environmental Committee and can be contacted by sending email to: gyaw@pasen.gov.  Sen. John Yudichak (D-Luzerne) serves as Minority Chair and can be contacted by sending email to: yudichak@pasenate.com.

Sen. David Argall (R-Schuylkill) is Chair of the Republican Policy Committee.  He can be contacted by sending email to: dargall@pasen.gov.