Unlocking the Marcellus Shale to Benefit Pennsylvania Households

The Pennsylvania Public Utility Commission is in an unusual position right now. It has the leverage to use its power to approve or disapprove the proposed merger of First Energy and Allegheny Energy to shape major new policy to take energy competition to a new phase in the Commonwealth.

The long first phase has seen most commercial and industrial consumers undertake an active search for a competitive power supplier. A significant number have continued to shop, changing suppliers two or three times, shopping for the best deal. On the residential side, though, about four in five households make no choice at all – they become, through inaction, members of the default provider pool.

Now comes the PUC opportunity. As a condition of approving the merger of the two distribution utilities, the PUC could require that we change the way the default provider pool is handled. One excellent concept involves conducting an auction of blocks of residential customers. And this is where I think it could get really exciting because a competitive auction could open the door for Pennsylvania households to tap into the benefits of the Marcellus Shale natural gas bonanza now unfolding.

An integrated production company – someone who drills the wells and then uses it commercially – could use its Marcellus Shale output to fire turbines to generate clean electricity. Because the electricity could be generated close to the well-heads, the need for long-distance transport via intrastate and interstate pipelines could be avoided. Because the company that owns the wells could generate the electricity – and sell it to the block of customers they purchased – would mean lower kilowatt-hour costs.

The beauty of this concept is that residential consumers would still be guaranteed choice. If they wanted a different supplier from the auction winner, they could still switch. But, because we now know from a decade of experience that three out of four – if not four out of five – will not care to switch, the auction winner would still have a good, solid base of customers so long as they kept their prices low.

One power supplier has taken this concept a step further. They believe that the bidding will be so intense that the funds collected from the auction could result in a pro rata rebate to all residential electric customers in the First Energy/Allegheny territory ranging from $150 to $500 per household.

I think the rebate idea is great. But I think it would be just as important to create an incentive for someone to use gas from the Marcellus Shale in Pennsylvania to directly benefit Pennsylvanians. Especially if they could generate the electricity at a lower cost than typical gas-fired turbines using gas purchased on the open market.

It could be a win-win for all Pennsylvanians.