Sorting out our perverse electricity markets

Sorting out our perverse electricity markets

Natural gas is getting a bum rap in renewables debate

THE RECENT ANNOUNCEMENT by developers of the Access Northeast natural gas pipeline that they are suspending the project until legislation allows for electric ratepayer financing of pipelines illustrates a major flaw in our electricity markets. A market structure that doesn’t incentivize natural gas power generators to subscribe to firm pipeline capacity, and federal open access tariff laws which make speculative pipeline construction financially infeasible, combine to cripple the prospects to expand natural gas supply, and drive electricity prices lower, in New England.

This speaks to one of the arguments made by opponents of natural gas pipelines—that pipeline companies (in this case, Enbridge, Eversource, and National Grid) should take the risk and not ratepayers. This is a legitimate debate, but the problem is many of those same opponents, whether they be activists, regulators, or elected officials, have no problem with ratepayers funding other energy sources, such as solar, wind, and energy efficiency, which have received billions in ratepayer support and have yielded questionable results.

Half of New England’s electricity is generated by natural gas, and for much of the year power generators have access to cheap fuel thanks to shale gas development in nearby states. However, on days when pipeline capacity is constricted due to increased demand, gas prices can soar. With natural gas plants setting the marginal price for electricity 75 percent of the time, those high prices have a dramatic impact on electricity prices. The lack of pipeline capacity on colder days, when much of the contracted fuel is heating homes, increases the volatility in electricity prices, and that volatility is reflected in the electricity rates paid by New England’s families and businesses.  That’s one reason that low wholesale electricity prices haven’t been passed through to retail prices, but it certainly isn’t the only reason.

Compliance with renewable power mandates, known as Renewable Portfolio Standards; the Regional Greenhouse Gas Initiative, which essentially taxes fossil-fuel generators per ton of carbon dioxide emitted; and energy efficiency programs increase costs to the region’s ratepayers by billions of dollars annually. And for what? The market has delivered low natural gas prices, which has resulted in natural gas generation displacing coal and oil-fired plants, and which has had a far greater impact on carbon dioxide emissions than either the Regional Greenhouse Gas Initiative or energy efficiency programs. In fact, residential electricity demand has increased by 2.5 percent since the initiative’s inception. The bulk of “efficiency” or demand savings has been seen in the commercial and industrial sectors –with commercial load falling 2.3 percent and industrial load falling a whopping 13.2 percent since 2008. This has much more to do with the loss of 110,000 manufacturing jobs than investments in energy efficiency programs or distributed generation (rooftop solar) aimed at reducing load.

The irony is that ratepayers don’t willingly pay more for electricity. Green energy rates are so unpopular that some utilities have abandoned them because the cost of managing the programs outweighs participation (often less than 1 percent). Many electricity aggregators, who purchase electricity for a variety of commercial and industrial customers (including schools and municipalities) say their clients want to pay as little for their power as possible; and generally, the only customers who choose “green” programs, which are roughly 20 percent more expensive than other options, aren’t businesses but schools and municipalities.

The end result is the creation of an environment where everyone is forced to seek a subsidy. Vermont Yankee, Brayton Point, and Pilgrim Nuclear Plant have retired or are retiring due to (artificially) low wholesale prices. Dominion Millstone in Connecticut, New England’s largest power facility, has been seeking a bailout from Connecticut ratepayers because it can no longer compete in the electricity market. Can it be long before Seabrook is asking New Hampshire’s ratepayers or taxpayers for support?

Meet the Author

Marc Brown

Executive director, New England Ratepayers Association
New England will need additional natural gas pipeline capacity to meet our electricity needs as more base load nuclear plants shut down due to perverse electricity markets that reward state-sponsored intermittent and unreliable renewables such as rooftop solar (which can only generate power 13 percent of the time). Ratepayer financing of natural gas pipelines is a policy argument worthy of debate, and until regulators find a way to tie firm commitment of pipeline capacity to energy and/or capacity markets, that debate will continue. However, elected officials, regulators, and advocates who have been outspoken in their opposition to ratepayer financing of pipelines, yet support ratepayer financing of renewables and energy efficiency, are hiding behind state policy support for renewables as justification for their hypocrisy. They may want to read the statutes a little more closely though, because hidden in the morass of statutes is always language that speaks of lower and stabilized electricity costs. Expanding natural gas pipeline capacity can do that, and the $3 billion price tag is a fraction of the tens of billions of dollars that we will pay for renewables in coming years.

Marc Brown is the executive director of the New England Ratepayers Association, a non-profit dedicated to protecting ratepayers in New England.

  • NortheasternEE

    About 10 years ago DOE laboratories published studies assuring policymakers that the power grid can easily handle the generation of electricity from variable and intermittent clean energy sources from wind and solar. The studies assured that 20% of the grid’s energy can be sourced from clean energy sources without any expensive grid modifications because the grid already has the resources to handle the variability of load. As a result, many states passed RPS legislation mandating increasing amounts of renewable energy reaching 20% by 2020.
    Today, with less than 10% generation from wind and solar, it is clear that these studies were way off the mark. The RPS mandates are destroying the competitive wholesale market for electricity, forcing the early retirement of coal and nuclear for a net zero avoidance of carbon. These dependable power sources with locally stored fuel, are being replaced with less dependable natural gas with fuel piped in from out of state, and hydro power all the way from Canada. In addition, huge sums need to be spent on installation of offshore wind, transmission lines to connect the additional wind, solar and hydro, batteries and other storage to tame the volatile power from wind and solar, and less dependable, long distance pipelines, for the additional gas. The destruction of the competitive wholesale market is forcing all conventional power generators to seek subsidies to match those of renewables.

    Instead of facing the reality that the experiment to get to 20% by 2020 failed, political leaders are now doubling down by passing legislation mandating higher levels of renewable energy penetration all the way to 100%. We are on the road to learning the futility of these mandates with skyrocketing rates, and unacceptable levels of power shortages, with no chance of reversing climate change. We need to convince policymakers to stop pushing these failed experiments, and wait for something to come along that works.

    Instead of calling for the ratepayers to fund the unnecessary pipelines, the New England Ratepayers Association should be lobbying for the repeal of the failed renewable energy mandates to restore the competitive market for electricity. That is the only action that is in the interest of the ratepayers.

    • Andrew

      Today will be a good test of how the grid reacts to lower solar output. The eclipse will show the flexibility of the grid. We shall see…

  • Mhmjjj2012

    So, who is Marc Brown and what are the funding sources for the New England Ratepayers Association? In 2015, The New Hampshire Union Leader ran an article, “Lawmakers want to know who’s financing NERA,” stating Marc Brown “refused to disclose his funding at the time and has steadfastly held that position, despite inquiries from the media, pressure from state lawmakers and attacks on his credibility by organizations such as the National Wildlife Federation and groups opposing the Northern Pass hydroelectric project. Nonetheless, he is routinely quoted as a representative of ratepayers, testifies in that capacity at hearings and lobbies lawmakers…Members of the New England Ratepayers Association or its board of directors (if it has one) do not wish to be revealed, and there is no legal requirement for them to do so, Brown said in a later interview… Wherever the money comes from, it has been used to aggressively promote the Northern Pass, the controversial proposal to import hydroelectric power from Quebec along new power lines through northern New Hampshire. Eversource spokesperson Martin Murray says his company, a partner with Hydro Quebec in the project, does not fund NERA. Officials from Hydro Quebec were unavailable for comment…” CommonWealth should provide a reasonable disclosure on the “nonprofit” commentaries. That could change how CommonWealth’s subscribers view the commentary.

    • RedWhitandBlue

      Amen to that, Mhm. I would additionally point out some serious, unsubstantiated over generalization and unsubstantiated claims, to boot. First 3 paragraphs seem not too out of whack, but the 4th links a decrease in commercial load to a loss of manufacturing jobs, not efficiency. Well, let us in on how you made that leap, Mr. Brown. Does not make sense. And what about the jobs that were created by incentivizing renewables? Might that number match or even be greater than that? Rooftop solar may only generate power when the sun shines, but it also coincides with peak power demand, especially during the hot summer months. Electric power generation operates around bottlenecks that occur largely at exactly those times. Solar relieves those bottlenecks, which, in turn relieves the power company from having to engage in large infrastructure expenditures in an attempt to overcome those same bottlenecks. So yes, it does save significant spending by power companies. The so-called taxes on power companies which are directed to rooftop solar are actually a rate structure to encourage solar build out over increases in power company capital expenditure. It’s part of the your electric bill that ends up in rooftop solar instead of additional capacity that the power companies would use the money for. Intermittent and unreliable? My left foot. People with solar experience substantially cheaper electricity which is designed to power their needs year round, with no discernible difference from relying 100% on power exclusively from their local electric company. The power companies aren’t thrilled about it because now people can invest in a source of power that does not come directly from the utilities. That’s why they pay people like Marc Brown to write disinformation like the half true and misleading dreck like the article above.

      • Mhmjjj2012

        I completely agree but its one thing for special interests to pay Marc Brown to write his commentary and quite another for CommonWealth to run that commentary as though it were written on behalf of New England’s ratepayers.