New England grapples with sky-high electricity rates as Ukraine war squeezes gas supply - The Hill

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New England grapples with sky-high electricity rates as Ukraine war squeezes gas supply | The Hill

Kristopher Radder/The Brattleboro Reformer via AP
A state plow truck clears snow in Vermont on Friday, Dec. 16, 2022.

New Englanders are contending with some of the highest electricity rates in the country this winter as they weather the transatlantic ripple effects of a global gas crunch.

Residents of New England’s six states have thus far enjoyed a relatively mild winter without rolling blackouts. But skyrocketing rates — fueled by natural gas price surges and the war in Ukraine — are taking a toll on a region accustomed to cranking up the heat.

“Natural gas prices have not been this high in New England since 2008 — before the fracking revolution, mortgage crisis and Great Recession caused energy prices to crash,” Tanya Bodell, an energy adviser and partner at consulting firm StoneTurn, told The Hill.

New England began to face fierce competition from the European Union over liquefied natural gas (LNG) supplies after Russia starting curtailing pipeline gas to the EU in response to sanctions over Moscow’s invasion of Ukraine.

Last year, with an uncertain winter on the horizon, the EU became a high-stakes bidder in the global race to stockpile LNG. And the bloc’s success in staving off an impending energy crisis has hit hard across the Atlantic, where residents rely heavily on gas to both power and heat their homes.

On-land natural gas pipelines can reach “peak delivery capacity during a subset of the coldest days in winter” — a challenge New England has typically tackled by seeking relief through LNG deliveries, Bodell explained. Now, however, demand for the resource “has skyrocketed in response to sanctions on Russian energy,” she added.

Sam Evans-Brown, executive director of Clean Energy New Hampshire, attributed the region’s dependence on LNG to its “decade-long binge of building natural gas fired power plants” without the construction of new pipelines.

“We are wedded, we’re handcuffed, to the most expensive fuel in the world,” Evans-Brown told The Hill. “And that’s what’s going to set our electricity prices all winter long.”

‘New England states are positioned differently’

The U.S. Energy Information Administration’s (EIA) short-term energy outlook projected that New England customers will pay on average about 26.94 cents per kilowatt-hour for electricity this month. That estimate rises to 28.95 cents per kilowatt-hour in February.

The average American household, on the other hand, is expected to pay about 14.47 cents per kilowatt-hour this month and 14.69 cents next month, according to the EIA.

Most of New England falls under the supervision of the Independent System Operator-New England (ISO-NE) — a body established by the Federal Energy Regulatory Commission to facilitate transmission and foster competition in the wholesale electricity market.

Despite being connected to the same grid, regions of New England can have unique electricity prices, regulations and supply sources.

“New England states are positioned differently with respect to LNG based on their pipeline interconnections and access to import facilities,” Bodell said.

Massachusetts — which is situated at the end of a pipeline — depends most on transports of LNG and therefore is enduring some of the highest delivered gas prices, according to Bodell.

The state’s largest utility, National Grid, raised residential electricity rates this November to 33.9 cents per kilowatt-hour — approximately a 64 percent rate increase in monthly bills.

The combination of a global energy crisis, supply constraints and inflation have “put significant upward pressure on natural gas and electricity prices throughout the country,” John Lamontagne, a National Grid spokesman, told The Hill in a statement.

“It is being acutely felt in New England and Massachusetts because natural gas is the fuel that drives electricity prices and our region is supply constrained,” he said.

Massachusetts utilities procure electricity from generators and pass the cost along without markup, meaning that “customers pay what we pay,” Lamontagne added. He also detailed several options for customers to conserve energy and secure energy and payment assistance.

Meanwhile, Connecticut’s two biggest utilities — Eversource and United Illuminating — this fall announced January rate hikes of at least 43 percent, up to 24.2 and 21.94 cents per kilowatt-hour, respectively.

United Illuminating justified the increases by pointing to “supply chain constraints, high inflation and the ongoing conflict in Ukraine,” while Eversource said that global conditions and extreme weather fueled these “all-time highs.” Both firms promoted the use of financial aid programs.

“Volatility in the natural gas market significantly impacts the electric supply prices we pay to generators for producing the power our customers use,” Eversource spokesperson Mitch Gross said in a statement.

The Hill has also reached out to United Illuminating for comment.

Christmas Eve’s winter storm

With relatively mild winter conditions thus far, New England has largely been able to avoid both rolling blackouts and acute price spikes that come with electricity capacity shortages.

During one severe winter storm on Christmas Eve, however, ISO-NE reported a grid capacity deficiency that left about 200,000 customers without power.

The region, which relied heavily on oil that day, incurred “numerous unexpected generator outages,” while neighboring areas underdelivered supplies, according to the report. ISO-NE triggered what is known as “capacity scarcity condition” pricing in the late afternoon.

Wholesale power prices jumped to more than $2,000 per megawatt-hour that evening — compared to spot prices of $30 per megawatt-hour the week before, Bloomberg reported.

But officials at ISO-NE attributed the 2 1/2-hour Christmas Eve event to the cold weather and unexpected generator shutdowns, rather than to the global gas crisis.

“This is the first time that we’ve had a capacity deficiency in New England since Labor Day 2018,” Matt Kakley, a spokesman for ISO-NE, told The Hill.

ISO-NE releases forecasts on a rolling, three-week basis, with the latest projections indicating adequate energy supplies through Jan. 23, according to Kakley.

While the natural gas crisis may not have been responsible for this event, Kakley said he did view the resource crunch as “one of the main drivers” of New England’s higher prices.

“We’re certainly seeing higher prices at the wholesale level, and that’s been driven largely by the high natural gas prices that we’re seeing here and elsewhere globally,” he added, warning that “an extended cold streak could challenge electricity prices further.”

Innovation and efficiency

Kakley stressed that the region must devise ways to curb its reliance on LNG “and not be beholden to a globally traded commodity.”

Evans-Brown echoed these sentiments, adding that natural gas prices in the U.S. will “remain elevated for years to come” due to Europe’s shift away from Russian pipeline gas.

“What that’s going to do is send a really powerful price signal that electricity is expensive now, and local generation is in the money,” he said.

Bodell likewise highlighted the ability of high prices to “motivate innovative solutions” in competitive markets.

Gas delivery alternatives, including the trucking of compressed natural gas, are now experiencing a revival, according to Bodell. She also discussed the idea of waiving the Jones Act, which requires goods shipped between U.S. ports to be conveyed on U.S.-flagged vessels.

“Without intending to, sometimes public policy can be part of the problem,” she said. “This regulation creates delivery inefficiencies that increase the price of delivered LNG to New England.”

Both Bodell and Evans-Brown voiced support for a transition to renewables, greater energy efficiency and efforts to curb electricity demand. Evans-Brown acknowledged, however, that “there is no fast way out of this.”

Some long-term solutions for New England include installing more off-shore wind turbines, procuring hydroelectricity from neighboring Quebec and developing hydrogen fuels, according to Bodell.

Other key steps include utility-funded energy efficiency programs, the integration of renewables in homes and businesses and “demand response” approaches — which she defined as turning down thermostats, covering windows and layering clothing.

“The energy industry is at a tipping point for innovation,” Bodell added.