National Grid of Massachusetts recently submitted a tariff request that will raise electricity rates for its residential customers by nearly 20% and its industrial customers by 30%. These increases will have a major impact on jobs, as a 30% increase in electricity rates to all Massachusetts’ industries would result in $600 million dollars in addition electricity costs annually—and countless job losses. The elderly and poor will also be highly impacted as a greater portion of their monthly expenses go to energy costs, leaving them with less money for food, medicine and other essentials. These rate increases are a direct result of New England’s over-reliance on natural gas for electricity generation, which will only be magnified as reliable base-load power options like Brayton Point and Vermont Yankee are retired. Immediately after Entergy announced the retirement of Vermont Yankee effective at the end of 2014, the Algonquin Citygate natural gas futures basis price rose $.50 per MMBtu. Natural gas set the price for electricity in New England during 80% of operating hours—which leaves ratepayers extremely vulnerable to increases in natural gas prices.
The explosion of the natural gas industry nationwide has been a boon to our economy and a benefit to ratepayers by lowering electricity costs. Unfortunately for New Englanders, the benefits of low-cost natural gas are tempered by restricted natural gas pipeline capacity in the Northeast. New England electricity generators have become increasing reliant on natural gas over the past two decades and electricity from natural gas now constitutes over 50% of power generated in the region—up from just 5% of generation in 1990. Additionally, local distribution companies (LDCs) account for most of the firm commitments on pipeline capacity in the region in order to provide home heating fuel to customers in the winter—resulting in restricted natural gas supplies for electricity generation and sharp price spikes in the region on colder winter days. According to the United States Department of Energy, on January 25, 2013 natural gas prices in New England reached $35/MMBtu while prices in the rest of the country remained below $4/MMBtu. In February electricity prices increased 400% during one cold spell.
New England’s Independent System Operator (ISO-NE) currently has roughly 5,000 MW of new capacity in its interconnection queue—which essentially represents all of the generation projects that are pending approval for construction in New England. 2,000 MW are wind projects, which rely heavily on natural gas generation for back-up to provide electricity when the wind doesn’t blow. Furthermore, what will happen to these projects when wind developers no longer have taxpayer-funded financing in the form of federal production/investment tax credits (PTC/ITC), which are set to expire at the end of the year? 2,700 MW are natural gas projects, which in theory should be good for reliability and rates as natural gas is cheap and abundant nationally, but the aforementioned capacity supply constraints in New England prohibit the region from taking full advantage of natural gas supplies. This could ultimately subject us to the kind of market manipulation the plagued California during its energy crisis in 2000, which caused rolling blackouts and wholesale electricity rates to climb to 800% over an eight month period.
The pertinent question to ask is what is our electricity grid going to look like ten or even twenty years from now? Without any PTC or ITC and ever-increasing opposition to siting of turbines, wind farms are out of the question—just look at the Cape Wind project that has received PPAs at three-to-five times wholesale rates and a 2.2 cent per kilowatt-hour production tax credit and still cannot find sufficient private capital to fund the project? Take away those “incentives” and it’s highly unlikely that we will ever see ground broken on another wind project in New England.
Due to environmental constraints, new coal and nuclear plants are off of the table and currently, twenty percent of the region’s capacity is supplied by uneconomical oil-fired plants that are only utilized when demand is high or scarcity conditions call for them to be dispatched—but at a premium. Oil-fired units have value to the grid because they provide capacity and reliability, but they shouldn’t be considered as a long-term solution to our electricity needs.
Putting all of our eggs in the basket of one fuel source is asking for trouble and will only further add to what are already the highest electricity rates of any region in the lower forty-eight. Legislators and stakeholders need to take a more discerning look at the future of our energy grid and promote policies that will provide the region with dependable, reliable, affordable electricity, not one that is profligate with politically-preferred projects that offer nothing but high electricity rates to the individuals and businesses that pay the bills.
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 Providence Journal.)