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.