The New England Power Generators Association, or NEPGA, is echoing the false claim that the region’s energy crisis is over – that winter power prices are down compared to last year, market fixes have solved the problem, and major investment in new infrastructure isn’t needed. Their claims contradict the evidence before us and overlook the very real and expensive energy problem New England now faces. Before buying NEPGA’s claim, consider this…
The Truth about Prices
While it is accurate to say wholesale electricity prices in New England were down in January compared to the historic high the year before, the average price of wholesale power during the winter of 2014 was a whopping 94 percent more than in 2013. Prices this January were still a lot more than they were two years ago – 34 percent more, and preliminary data also suggests that this February’s wholesale prices were higher than two years ago. As we look to the future, the 1,500 megawatt Brayton Point power plant, which primarily burns coal and oil, will retire in June 2017, making New England’s gas dependency even higher and putting even more upward pressure on energy prices.
What’s overlooked in the reports about “lower energy costs this winter” is that New England customers continue to pay more for electricity than anywhere else in the country. According to data from the Energy Information Administration, homeowners here pay on average 5 cents per kilowatt hour more than the U.S. average. For a modest electricity user, that amounts to $300 extra a year.
Big Dollars at Stake
NEPGA’s members control more than 80 percent of all the existing power generation in New England. Every year generators pledge to produce power several years down the road in a process called the Forward Capacity Auction. The FCA guarantees payments to generators for this pledge, essentially a type of “incentive payment.” Electric utility customers in New England currently pay a total of $1 billion in annual capacity payments. The most recent auction results indicate that price tag will increase to $4 billion in three years.
Here in New Hampshire for instance, the owners of Seabrook Station will receive $45 million in capacity payments this year. The most recent auction results indicate that figure will increase to $127 million in 2018, and even more the following year. These increased capacity payments are the result of limited supply and looming power plant retirements that are shrinking our capacity supply. Generators receive bigger payments because when supply goes down prices go up.
Interestingly, these capacity payments are in addition to the money power generators will make on the electricity they produce. Without major solutions to address supply constraints, these capacity prices will stay high, and New England’s electric utility customers will continue to pay extra money to generators just to stay open.
Temporary is No Solution
In NEPGA’s recent press conference, speakers pointed to market responses that kept wholesale power prices from reaching record highs again this winter. Few of these responses, however, can be viewed as permanent fixes.
One such fix is ISO-New England’s Winter Reliability Program which offers potentially millions of dollars in incentives to power plants for storing extra fuel – like oil and Liquefied Natural Gas (LNG) –as a backup if natural gas is unavailable or other problems strain the ability to produce power. The program is a temporary one and requires federal approval each year it’s proposed.
Another fix cited is this year’s increased supply of Liquified Natural Gas (LNG), which this winter was pumped into New England’s pipelines from off-shore ports. In recent years, LNG has gotten a higher premium in markets outside the US, but that changed this year. Low market prices for LNG worldwide have made New England an attractive market. While those shipments certainly helped to stabilize natural gas prices and supply this winter, there’s no certainty that prices will continue to be attractive enough to rely on future shipments.
There is a wide regional discussion about how to rein in New England’s out-of-control energy costs. Multiple studies point to a real problem that will only be solved by adding new energy infrastructure. Even our independent grid operator, ISO New England, is urging our region to increase our energy supply. Yet NEPGA’s members claim that there is no crisis. It’s no wonder, considering all they have to lose if New England really does solve its energy challenges.