Are deregulated power markets producing the long-term, reliable energy infrastructure that manufacturers need to invest and expand?

The issue looms because the Marcellus Shale natural gas boom has raised the potential for a “manufacturing renaissance” in Pennsylvania and other shale states, David Ciarlone, manager of Global Energy Services for Alcoa told the Federal Energy Regulatory Commission’s (FERC) technical conference on growing electricity and gas industry interdependencies recently held in Washington, DC.

But the Northeast’s deregulated electricity markets only guarantee supply three years ahead. “Three years is laughable to anybody in a large-scale manufacturing business,” said Ciarlone.

Ciarlone contrasted discussion in an earlier FERC conference focusing on the Southeast, where traditionally regulated utilities spokes of routine 10- and 20-year planning horizons, with what he was hearing from the Northeast. Deregulated electricity and gas market players said they looked to rising market prices to signal when infrastructure investment is needed.

Though increasing numbers of power generators are using natural gas to fuel their plants, planning for pipelines to supply those facilities is not a natural gas industry responsibility, said Richard Kruse, Vice President of pipeline operator Spectra.

Three years is laughable to anybody in a large-scale manufacturing business,” – Ciarlone

Most power plant operators don’t now pay the premium shippers charge for guaranteed fuel supply, speakers agreed. Kruse said pipeline companies build pipelines when shippers commit to pay for them, not for speculative future users.

The electricity industry can’t take all the risk of funding pipelines, either, said Michael Kormos, Senior Vice President of regional grid operator PJM. Higher power prices signal when more generation or transmission is needed, rather than planners attempting to anticipate needs.

“We don’t plan for generation,” Kormos said. “That is not a market responsibility.”

Manufacturing industries are looking for long-term assurances on their power supply when they make factory siting decisions, Ciarlone said, ticking off affordability, predictability, reliability, stability and sustainability as key factors.

“Price signals are not a substitute for planning,” said Ciarlone.

Noting traditionally regulated utilities in the Southeast routinely utilize integrated resource plans with 20-year investment horizons, Ciarlone asked, “Where am I going to feel more comfortable investing?”

While some deregulated markets like Texas procure only power and only for days ahead, PJM has been conducting capacity auctions to lock in supply for three years into the future. However, the capacity charge has raised power prices, and spurred consumer resistance, especially in congested regions of Maryland and New Jersey.

Kruse said natural gas will be there if customers pay for it, but if reliability of supply is valuable, then prices need to reflect that.

Ciarlone said he was wary of the “enhanced incentives” being discussed by both electric and gas market participants as ways to ensure the bonanza of natural gas from shales gets to customers and generators.

“We want to make sure when we finally get this cheap resource, we can still afford it,” he said.