New England suffers from the highest electricity costs of any region in the lower forty-eight states. According to the most recent government data, regional electricity prices in the United States vary from a low of 7.97 cents per kWh in the Plains to a high of 13.79 cents per kWh in New England—with each state in our region ranking in the top ten in electricity costs nationwide. At the same time, manufacturing jobs in New England are on the decline even as we see manufacturing recoveries in the Midwest, Texas and other parts of the country. This is not just a coincidence.
The recent natural gas exploration and production boom has led to growing natural gas supplies, resulting in lower natural gas prices and lower energy costs. These lower prices have led to increased electricity generation from gas-fired generators in New England, nearly tripling from 15% in 2000 to 42% in 2012. Unfortunately, pipelines into the region haven’t expanded incrementally with the rising natural gas demand. Currently, natural gas supplies reach the Northeast via pipelines that originate in places as far away as Western Canada and the Gulf of Mexico. Approximately 25,000 miles of pipeline reside in the Northeast, one of the lowest of any region in the country. Liquefied Natural Gas (LNG) can be imported to four locations in the Northeast: one in New Brunswick, Canada; one at the Everett Terminal in Everett, Massachusetts; and two terminals off of the coast of Massachusetts. Even with these sources, access to natural gas in New England has a hard time keeping pace with the demand.
New England’s independent system operator (ISO-NE), who manages the electricity grid for the region, recently reported that New England’s highest-priority strategic risk is the increased reliance on natural gas-fired capacity. ISO further believes that current pipeline capacity will be deficient in providing adequate natural gas supply to meet future electricity demand. The natural gas supply issue is exacerbated by the fact that New England also uses natural gas heavily to heat homes in the winter. A significant portion of natural gas supply is earmarked to home-heating distributors who provide the gas that heats homes in New England. When a cold spell hits the Northeast, the distribution companies have priority on supply, which results in less natural gas available to generators. Recently, when demand peaked, access to supply was very tight and generators had to pay much higher prices for the incremental gas that was available, spiking electricity costs across the entire region.
Two cold snaps this winter, one in November and one in January, illustrate how our restricted pipeline capacity negatively impacts natural gas and electricity prices in the region. According to the Institute for Energy Research, one November cold spell caused electricity prices to rise to $103.20 per mega-watt hour, more than double the average price. More recently, in late January when temperatures dipped to 20 degrees below normal, the cost of electricity exceeded $200 per MWh. The sudden rise in electricity prices forced one New Hampshire-based electricity supplier, Power New England (PNE), out of the business. PNE, who was supplying its 8,500 customers with electricity purchased on the spot market, couldn’t meet the collateral requirements of ISO-NE, leading to the suspension of PNE’s license in February. This resulted in PNE customers being transferred to another provider or moving to the default service provider, PSNH. Rising natural gas prices will raise electricity prices for both regulated and deregulated electricity suppliers in New England – which means higher electricity rates in the short term and long term.
Demand for both natural gas heat and electricity generation is projected to continue to climb, making expanding the natural gas pipeline an energy priority for New England. Despite Renewable Portfolio Standard mandates, Regional Greenhouse Gas Initiative (RGGI) and tax policies designed to expand the renewable energy industry, wind and solar combined to produce only 1% of electricity generation in New England in 2012. Additionally, coal and oil generation plants have been shuttered due to regulatory policies, leaving natural gas and nuclear energy to provide 75% of the electricity in New England.
The state of Connecticut has plans to potentially expand pipeline capacity that would supply an additional 300,000 residents and businesses with natural gas, which would result in lower utility bills for ratepayers. The rest of the states in the region should follow suit. Additionally, Spectra Energy, a Houston-based company, who has plans to expand the Algonquin terminal pipeline into New England has estimated that by expanding pipeline capacity, New Englanders could save $240 to $310 million annually on their gas and electric bills. Given the myriad of regulatory policies and legislative initiatives that have saddled New Englanders with the highest electricity rates in the country and have hurt our manufacturing base, we need access to reliable and more affordable energy supplies. Expanding the natural gas pipelines in the region will provide it.
Marc Brown is the Executive Director of the New England Ratepayers Association, a non-profit dedicated to protecting ratepayers in New England.
(A version of this column originally appeared in the Connecticut Post.)