Wholesale electricity prices drop to 13-year low

Cheap natural gas and lower demand cause price to fall

New England’s wholesale electricity prices plunged to their lowest level in 13 years in 2016, propelled by cheap natural gas and lower consumer demand for power.

The operator of the region’s power grid, ISO New England, said the average wholesale price of electricity was $28.94 per megawatt hour in 2016, down 29.4 percent from the year before. The next lowest level in the last 13 years was in 2012, when the price was $36.09 per megawatt hour. The total value of the wholesale electric market was $4.1 billion in 2016, down 30 percent from 2015 and well below the $5.2 billion value in 2012.

Wholesale prices are what power generators receive for the electricity they feed into the grid. Consumers pay a higher retail price that includes charges for transmission, distribution, energy efficiency, and customer fees. Still, lower wholesale prices typically translate into lower retail prices.

ISO New England said wholesale electricity prices fell in 2016 primarily because the price of natural gas, the dominant fuel used by the region’s power plants, dropped to its lowest level since 1999. Helped along by warmer-than-usual weather and energy efficiency efforts, demand for electricity also fell 2.1 percent in New England during 2016.

The good news on the price of electricity comes at a time when officials in Massachusetts and across the region are trying to decide whether the region needs more natural gas pipeline capacity. ISO New England and the Baker administration both believe the region needs another natural gas pipeline coming in to New England to avoid spikes in electricity prices.

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Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

When winter temperatures plunge, more of the gas coming into the region goes for home heating and less is available for power generation, which tends to drive up wholesale electricity prices. But opponents of building a new pipeline say the region can manage its electricity usage over the next five to 10 years until renewable forms of energy come online and make a new pipeline unnecessary.

Gordon van Welie, the president and CEO of ISO New England, said the region’s wholesale prices are heavily dependent on the weather. “When New England’s natural gas power plants can access low-cost fuel, wholesale power prices tend to remain low,” he said in a statement. “By comparison, extremely cold temperatures three winters ago resulted in pipeline constraints and caused natural gas – and wholesale electricity – prices to hit record highs. January and February 2014 still stand as the two highest-priced months for wholesale power in New England.”

  • NortheasternEE

    Why are rates rising while wholesale prices are falling. According to data from the U.S. Energy Information Administration (EIA), In December of 1912 rates were 15.58 cents per kilowatt-hour. In December 2016 the rates were 18.44 cents per kilowatt-hour.

    The statement “wholesale prices typically translate into lower retail prices” is misleading. The switch to all natural gas is not working out!