A Shock From Cheap Gas

- Naureen S. Malik and Brian Eckhouse

There’s a glut of natural gas from a gigantic shale basin that straddles the U.S. Northeast, mid-Atlantic, and Midwest, and it’s helped spark a massive boom in power plant construction. Dozens have been built in the past two years alone. The problem for their owners: There isn’t nearly enough electricity demand to support all the new capacity.

Wholesale electricity prices in the region have plunged. PJM Interconnection LLC, which manages a huge power grid that runs from northern Illinois to New Jersey, oversees a market through which electric utilities and other resellers can buy power from plants plugged into the system. Its benchmark wholesale price was an average $28.79 per megawatt-hour last year, less than half the price in 2008, when the shale rush took hold.

That means some power producers are scrambling to offload their plants. “Everything in fossil fuels is for sale,” says Ted Brandt, chief executive officer of Marathon Capital LLC, a merger sand-acquisitions adviser in Chicago. “People are bleeding.”