The Northern Pass Transmission project has engendered much controversy over the past few years—most of it centered on the location of transmission lines through New Hampshire’s North Country. One thing that can’t be debated is the low-cost electricity and reliability that the 1200MW hydro-generated project will bring to New England’s electricity grid.
Opponents of the project argue that New Hampshire won’t benefit from Northern Pass because we won’t get the electricity, but that premise couldn’t be further from the truth. The grid essentially works like a large swimming pool with hoses bringing water in (generators), while other hoses take water out (suppliers). Generators provide energy to the grid (the swimming pool) and suppliers purchase the electricity for our homes and businesses at the “marginal rate”, which represents the highest bid accepted by New England’s Independent System Operator (ISO-NE), the organization that manages the region’s electricity grid. Generators with bids below the marginal rate get to pocket the difference. Basically, if “Acme Generation” bids $20/MWh and the marginal rate is $30/MWh, Acme receives $30 even though its bid was only $20—a $10 bonus. Anytime we can get new generation into the grid that lowers the marginal rate it will benefit ratepayers, and the Northern Pass Project will do just that.
Any power from Northern Pass that isn’t bid into the grid will be sold directly to electricity suppliers via Power Purchase Agreements (PPAs). Adversaries of PPAs argue that long-term contracts could potentially shift costs from generator to ratepayers. This may be true with expensive power sources like wind and biomass, but hydroelectric power has historically been a source of low-cost electricity. In fact, states with high percentages of hydroelectric power like Washington, Idaho and Oregon have some of the lowest electricity rates in the country. Vermont utilities currently enjoy a PPA with Hydro-Quebec at 6 cents per kilowatt-hour, providing Vermonters with price stability from a reliable, base-load power source.
Roughly half of the electricity generated in New England is derived from natural gas. Recently, the ISO-NE has voiced concerns about the region being too dependent on natural gas electricity generation. Two problems face natural gas generators in time of peak demand: (1) a lack of pipeline infrastructure that restricts supply of natural gas and (2) lack of firm contracts of current supply to natural gas generators, most of whom sit behind local distribution companies (LDCs) in the supply line. LDCs are responsible for providing natural gas for home heating throughout the region and they purchase their supplies with firm contracts so they can be sure to have natural gas available.
Northern Pass will offer price stability and reliability to the region’s grid as well as furnish ratepayers with a valuable hedge against future volatility to natural gas prices—especially against price shocks like the ones that hit natural gas generators and suppliers this past winter, causing the price of electricity to quadruple and forcing an electricity supplier out of the market.
The new route proposed by Northern Pass officials last week has addressed many concerns about the impact of the transmission lines, in particular eliminating the possibility of eminent domain takings as well as burying power lines in some areas that are of particular concern to property owners and conservationists. There are special interest groups that oppose Northern Pass, making fatuous statement about high electricity prices and environmental impacts. Not surprisingly, some of these same groups instead support projects like Cape Wind, which like Northern Pass will provide carbon-free power to the region (Northern Pass is expected to reduce greenhouse gas emissions by five million tons annually, with yearly savings to ratepayers of $20-$50 million in avoided CO2 allowances). However, Northern Pass is entirely privately funded and will provide base-load power at competitive rates. Cape Wind will provide intermittent power at three to five times market rates, costing ratepayers billions of dollars in higher energy costs, and require up to $1 billion in taxpayer support. Which of these projects makes sense for the New England region?
ISO-NE has called the region’s growing dependence on natural gas for power generation as the highest priority strategic risk for the New England power grid. With over 8000 MW of generation to be retired by 2020 the region will need to cover a shortfall of 6000 MW of electricity generation. Northern Pass will provide 1200 MW of that shortfall and will do so in a way that provides clean, reliable, base-load power to our region’s grid and will lower the cost of electricity to ratepayers in the process.
Marc Brown is the Executive Director of the New England Ratepayers Association, a nonprofit dedicated to protecting ratepayers.