Power Plant Owners Argue Energy 'Crisis' Is Overblown

Mar 4, 2015

Electricity and natural gas prices are up this winter, but are nowhere near the peaks seen in the previous two winters.
Credit ISO New England

  This fall, energy industry watchers were predicting that a cold-winter in New England would lead to high natural gas and electricity prices.

But despite record-breaking cold, energy prices have – thus far – remained in check this winter.

Last winter, the whole-sale price for electricity – that’s the price utilities and electricity supply companies pay – spiked to unprecedented heights.

“The highest electricity prices ever got in New England, last winter, were $450 dollars a megawatts hour,” says Dan Dolan, President of the New England Power Generators, which represents power-plant owners.

To put that in perspective, that’s about six times more than what the market is at today. The explanation for those spikes has been not enough natural gas pipelines in the region.

This winter, not only is there still the same amount of pipeline, but also a major nuclear plant and a big coal plant have been retired.

This fall the predictions were dire – if we had a cold winter analysts and power-purchasers were expecting the spikes to get even worse.

“Instead what’s actually happened is prices have fallen dramatically,” says Dolan.

According to the region’s grid-operator, wholesale prices in January were 60% lower than January of last year, even though this year was colder.

So what’s the story?

There was one big factor: the drop in the price of oil.

“A lot of the natural gas fired power plants in the region have the ability to switch to oil, when natural gas becomes constrained,” says Dan Allegretti, who does government affairs for power-plant owner Exelon.

But more importantly, lower oil prices also fuel lower liquefied natural gas prices, or LNG. LNG does a sort of end-around the pipeline bottleneck because is brought in by boat, mostly from Trinidad and Tobago. 

“That feeds the pipeline network from the eastern side and helps to relieve the congestion on the pipeline when the demand to bring in shale gas from the Western side is at its peak,” says Allegretti.

What Energy Crisis?

The message, according to the folks who represent most of New England’s power-plants, is that the states should just the let the market do its thing.

Allegretti and Dolan say it’s a cautionary tale for New Hampshire policy-makers, who have been presented with proposals to subsidize all sorts of energy infrastructure – both natural gas pipelines and major electric transmission lines – in order to lower the region’s electric rates.

“I think the story here is, there were a lot of market responses, none of which involve building new infrastructure, between last winter and this winter,” Allegretti explains.

This is not a universally held view.

“I think that to look at this winter and say that we don’t have a problem because things weren’t as bad as last winter is setting the bar pretty low,” says Lauren Collins a spokesperson for Eversource Energy, formerly Northeast Utilities. Eversource is involved with two of major infrastructure projects: a major natural gas pipeline expansion in partnership with Spectra Energy, and the Northern Pass transmission line, which would connect New England to provincially owned hydro-power in Quebec.

Collins says the low price of oil, and boats full of foreign natural gas amount to temporary solutions, subject to the whims of global energy markets. “Over the course of the last several years, we’ve wound up digging ourselves into an energy hole, and just because that hole hasn’t gotten deeper, doesn’t mean things don’t need to be done,” she says.

The central question is will the next few years look more like this winter – with stable energy prices – or last winter – with crazy spikes.

Regardless, these lower whole-sale prices haven’t trickled down to the retail prices consumers pay yet, and likely won’t for months to come.