Electricity prices in New England are the highest of any region in the United States and have increased 17 to 44 percent the past decade (depending on the state). Not coincidently, New England has lost 150,000 manufacturing jobs during the same period—and too frequently companies have moved or expanded to other parts of the country.
A combination of environmental regulations and wholesale market changes have led nuclear, coal and oil plants to retire, leaving the region with dwindling options for reliable base load power. Two-thirds of the ISO-NE interconnection queue for proposed generation is comprised of natural gas electricity plants—with the bulk of the rest made up of intermittent and non-dispatchable wind power.
Natural gas is now the plough horse for generation in New England—accounting for 50 percent of New England’s annual electricity generation and setting the price for electricity 80 percent of the time. Unfortunately, the region doesn’t have the requisite pipeline capacity to economically deliver gas to generators in the winter when most of the existing pipeline capacity is contracted to local distribution companies for their home and business heating customers. This has led to extreme volatility in the wholesale electricity markets. The past few winters have seen the weekly day-ahead wholesale average spike to as high as $262/MWh in 2014 and gas prices increase ten-fold.
New England’s wholesale electricity costs during the winter of 2011-2012 were $1.6 billion. Subsequent winters have seen additional wholesale costs of $1.9 billion, $4.9 billion and $2.0 billion and the trend is expected to continue. Liquefied natural gas imports provided some relief this past winter, but we still had weeks with wholesale electricity prices exceeding $150 per MWh—triple the norm. LNG should not be looked at as a long-term solution. Changes in the global marketplace may redirect tankers to Europe or Asia instead of New England.
Pipeline capacity constraints aren’t relegated to winter. In mid-October the Algonquin Citygate hub (Boston) saw prices for natural gas exceed $6 per MMBtu while just a few hours away New York hubs were at $2—and some Pennsylvania hubs were under $1 per MMBtu. This firewall between New York and New England leaves us paying higher electricity prices than we should. An afternoon at this time of year would normally see prices at $20 – $30 per MWh, but because of the basis differential between New York and Boston gas hubs of $4 per MMBtu we were paying $60 per MWh.
Low load days on shoulder months like October traditionally provide utilities and ratepayers with some relief—offsetting winter and summer months when loads are much higher and price spikes much more volatile. In order to address this issue and provide long-term relief and stability to ratepayers we need to expand natural gas pipeline capacity into New England. The two main pipeline projects currently on the table are the Northeast Energy Direct Project, which would bring up to 1.3 billion cubic feet per day (bcf/d) of natural gas from the Wright Interconnection in New York to Dracut, Massachusetts; and the Access Northeast Project, which is essentially an expansion of the existing Algonquin natural gas pipeline system and will deliver up to 1 bcf/d—accessing 60% of the region’s gas-fired generators along the way. Numerous studies have shown that expanding natural gas in the region would save New England ratepayers hundreds of millions of dollars annually.
It’s trendy to oppose all things infrastructure—natural gas plants in Massachusetts and Connecticut, overhead transmission lines in New Hampshire, wind farms, cell phone towers, propane rail expansion and, of course, buried natural gas pipelines anywhere. This is clearly a case of reaping what we have sown. New England states have imposed legislative and regulatory reforms that have left us with exactly two options for base load power—natural gas and large-scale hydropower; and both will require significant infrastructure expansion facing fierce opposition.
Concerns about the need for infrastructure expansion aren’t hypothetical or theoretical—they are real and families and businesses are feeling the impacts. Maine’s paper mills have been brutally hit by soaring energy costs, New Hampshire has seen manufacturers expand to states with lower energy costs. Even Vermont has lost over 15% of its manufacturing jobs in the past decade. What we can’t calculate is the countless other businesses that won’t even look to locate in New England because of its high energy costs.
Representatives from ISO have called the current situation with our grid untenable—and it is. We are facing rising prices and some areas are looking at serious capacity shortages even before the announcement of Pilgrim’s pending retirement. Unless we plan on delivering power via Wonka Vision we need to invest in the energy infrastructure necessary to power our families and businesses in a reliable and cost-effective manner.
Marc Brown is the Executive Director of the New England Ratepayers Association, a nonprofit dedicated to protecting ratepayers.
(A version of this column originally appeared in The Berkshire Eagle.)