The situation van Welie outlined was starkly on display in January when a series of bitter-cold spells drove electricity prices in the region to record levels. “The high prices of natural gas this winter, due to pipeline constraints, pushed up the price of wholesale electric energy,” said ISO spokeswoman Lacey Girard (Greenwire, Jan. 23).

“In fact, the total value of the electric energy market alone in New England in December, January and February was $5.1 billion; that compares to $8.0 billion for the full year of 2013 and $5.2 billion for the full year of 2012 (which saw the lowest prices and energy market value since March 2003, when markets in their current form were implemented),” she said in an email.

Some stakeholders are pinning their hopes on a proposal offered by the region’s governors in December to fast-track construction of hundreds of miles of new natural gas pipelines and transmission lines.

Part of that proposal would seek a change in the ISO’s tariff to allow it to collect money to support new gas pipelines from electricity customers (EnergyWire, Jan. 3).

“How it would work is still very much under discussion, but ISO New England would serve only as a billing and collection agent,” Girard said. “The ISO only has authority to bill companies doing business in the regional electricity marketplace; the companies would likely pass the costs along to their customers. However, the details surrounding a tariff change, cost allocation, and how the pipeline would get built are under discussion and have yet to be determined,” she said.

“Without investment in new infrastructure, New England will face more of these price spikes, our competitive advantage will erode and we’ll have a significant capacity challenge in the next five to six years when these old, dirty oil and coal plants go offline and we won’t have the means to replace them,” said Steven Clarke, assistant secretary of energy in Massachusetts.

Infrastructure causes ‘significant differential’ in gas prices

“We’ve got some concerns. We don’t like subsidies. Period,” said Dan Dolan, president of the New England Power Generator Association, whose members include Exelon Corp., NRG Energy Inc., Calpine Corp., Entergy Corp. and PSEG Co.

“There is absolute recognition in the marketplace that with the move that we’ve had over the five or six years to increase natural gas use for power generation, the natural gas transportation infrastructure hasn’t caught up in New England. We haven’t had a major new pipeline built in 20 or 30 years,” he said. As a result, there is a “substantial differential” between natural gas prices in New England and New York or the Mid-Atlantic where access to Marcellus gas is easier, he said.

Dolan noted that the market is starting to respond as there are “four major new pipeline proposals on the books, a number of which have received contracting commitments to begin the development process.”

The pipeline subscribers are local gas distribution companies, not electricity generators. But even so, “this is going to create a substantial increase in gas supply into the marketplace available to market participants like power generators. It doesn’t serve as a panacea; it’s not that silver bullet, but it helps narrow the amount of days where we have peak period challenges from an operations perspective” in meeting electricity demand, he said.

NEPGA’s concerns are that an ISO-collected fee could “have some pretty unfortunate unintended consequences such as driving out potential economic generators and exacerbating” the pressure on coal and nuclear plants to close. “By underwriting and subsidizing pipeline development, it will accelerate” a move to more use of natural gas for power generation, Dolan said.

The ISO data is a “major concern,” said Connecticut Consumer Counsel Elin Katz.

“Doing nothing has a tremendous cost for consumers. I’m supportive of any creative idea that can solve this problem as soon as possible,” Katz said. “The natural gas pipeline situation is going to continue to contribute to high energy prices until we can get it resolved.”

Connecticut’s “aggressive energy efficiency programs” can help reduce consumer electricity use in the short term, she said.

“You have to look at your trade-offs,” she said, referring to the proposed customer charge to support pipeline development. “I’d rather pay a little more and solve the problem than continue to pay astronomical prices and know that it’s going to continue into the future.”

Weather drove demand

Demand for electricity rose slightly in New England in 2013, by about 1 percent to 129,350 gigawatt-hours (GWh), the ISO said. When annual variations in weather are factored out, which allows demand to be evaluated on a comparable basis from year to year, electricity consumption would have dropped 0.4 percent to 127,754 GWh in 2013 compared with the weather-normalized 128,249 GWh of electricity consumed in 2012.

Preliminary ISO data show that the average price of wholesale electric energy rose to $56.06 per megawatt-hour (MWh) in 2013, up from 2012’s historic low price of $36.09/MWh.

Natural gas is the predominant fuel generating the region’s electricity, at about 46 percent in 2013, so wholesale power prices tend to track the price of natural gas. In 2013, preliminary data show that the price of natural gas averaged $6.97 per million British thermal units (MMBtu), up 76 percent from the 2012 record low price of $3.95/MMBtu.

The higher wholesale electricity prices will eventually have an effect on the retail rates paid by consumers, which are set and overseen by state regulators, the ISO’s Girard said. But exactly how much of an effect will depend on the terms of the individual, bilateral contracts signed by the region’s utilities with generators for future supply.