New England is predicted to see the most expensive wholesale electricity prices in the nation this summer, according to a recent report by the U.S. Energy Information Administration.
The region’s mushrooming costs are indicative of the continuous turmoil of today’s energy markets — a combination of COVID economic recovery, inflation and the ongoing war conflict in Ukraine driving up prices for natural gas and oil.
But making matters worse in New England, experts say, is the region’s reliance on natural gas — perhaps the biggest culprit for its highest-in-the-nation designation.
This past winter, New Englanders already saw themselves paying significantly more for electricity and home heating, and summertime is infamous for high bills because of air conditioning and appliance use.
Average summer residential electricity prices in New England could increase close to 16%, the EIA predicts, compared to 4% nationally. The average monthly price that utility companies purchase electricity for — the wholesale price — could be 167% more than last summer. How and when the wholesale increase presents itself on customers’ bills will vary.
“This is not because of hot weather, this is because we are over-reliant on natural gas,” said Melissa Birchard, director of clean energy and grid reform at the Acadia Center, a nonprofit working to recalibrate the Northeast’s energy system. “Natural gas has become very expensive and hard to get after the Russian invasion of Ukraine.”
Because New England produces no natural gas of its own, “we have to get it from somewhere,” Birchard continued. As a result, “New England consumers are paying the price for an over-reliance on this fuel that’s an international commodity subject to price volatility.”
About half of New England’s electricity is currently powered by natural gas, a climate change-contributing fossil fuel that releases greenhouse gas when burned. ISO-New England, the entity that operates the region’s power grid 24/7, has taken heat from advocates working on the energy transition, who claim ISO is making it difficult for renewable energy options to power the grid, and instead, allowing it to remain largely reliant on natural gas.
ISO-New England, however, refutes that claim. Spokesperson Matt Kakley called it “misleading” to point fingers at ISO-New England for the rate increases in question, citing its federal mandate to be fuel and technology-neutral, and delays in clean energy sources, such as wind power, coming online in New England.
Electricity prices are volatile, but more increases in New England not a surprise
In its short-term summer outlook, EIA acknowledges “realized prices can be extremely volatile and average price forecasts can be very uncertain.” But Birchard said the projected increases aren’t a surprise, considering New England’s wholesale electricity prices increased more than 80% in the first three months of 2022.
Citing milder expected temperatures, the EIA is, however, anticipating lower-than-average electricity use this summer, which could offset the soaring prices. For New England, electricity use — or kilowatt hours — could be 5.6% less than last summer, the administration forecasts.
That would be a drastic change from last year, when multiple heat waves gripped parts of the region during the course of the summer. 2021 ultimately became the hottest year on record both in Boston and Providence, Rhode Island.
ISO-New England has cited a developing trend of more “duck curve” days, indicating lower grid demand in the afternoon than overnight. On May 1, ISO said it observed the lowest mark of demand for grid electricity since it began operating the system in 1997 — a combination of “mild temperatures, sunny skies and typically low Sunday demand.”
The grid operator has cited more rooftop solar installations as a leading reason.
“While these changes haven’t happened overnight, a day like May 1 is a good reminder of the progress New England has made in its transition to the future grid,” said Vamsi Chadalavada, ISO-New England’s chief operating officer.
What is the difference between wholesale and retail electricity costs?
Electricity is produced and sold on a wholesale level to energy delivery companies — like Eversource, National Grid and Central Maine Power — and then from there, sold and distributed to individual customers.
Prices vary across the region based on specific utilities and retail distribution. Utility companies operate on different schedules, setting rates based on what low price they’re able to shop from electric suppliers. Rates are then approved by state regulators and the Federal Energy Regulatory Commission.
According to ISO-New England, a consumer’s retail electricity bill reflects the wholesale market price of electricity as a cents/kilowatt hour (kWh) charge, typically shown on a bill as “basic service” or “default service.” That rate is just one piece of a bill. Bills also include charges for delivery and transmission, among other things.
The price of wholesale electricity can change depending on the time of day, season and location in New England, based on factors like price of natural gas and consumer demand. Utility companies typically set rates two or three times per year, abiding by the varying state regulations to protect customers from fluctuations and immediate hikes. Many companies also have long-term contracts in place as a cushion against price volatility.
Wholesale costs ultimately affect individual consumer bills, but there might not be an immediate impact, explained Birchard. But if companies have fuel adjustment clauses in place, that can allow a rate change to occur more quickly.
“Eventually consumers have to pay,” Birchard said, warning about next winter. Though prices will rise, she said individual bills will not see the “same magnitude of the wholesale price elevation.”
The average summer real-time wholesale electricity price for June-August 2021 in the region was $40.22 ($/MWh), according to ISO-New England, during which time the cost of natural gas had more than doubled over the same period in 2020.
Per EIA’s predictions for this summer, New England’s average wholesale electricity price could skyrocket — a 167% increase from last year. EIA is forecasting retail residential electricity customers in the region could see a 16% increase.
William Hinkle, spokesperson for Eversource, New England’s largest energy provider serving Massachusetts, New Hampshire and Connecticut, said the changing costs of demand and global market forces are “directly passed through to customers with no profit to the company.”
Like Birchard, Hinkle cited New England’s “heavy reliance” on natural gas, high demand and rising prices worldwide as driving costs increases locally. Other contributing factors, he said, include previous prices that were at 10-year lows, the war conflict in Ukraine and extreme weather events within the last year that have impacted gas production in states that produce their own natural gas.
Will electricity rates in New England continue to climb?
For National Grid customers in Rhode Island and Massachusetts, summer electricity rates will actually be a reduction from what they were paying before April 1 and May 1, respectively, but an increase over what they paid last summer.
Ted Kresse, spokesperson for National Grid Rhode Island, said they’re anticipating customers will see a roughly 2% increase compared to summer 2021. National Grid customers in Massachusetts will see closer to 9%. Both supply rates, though, are reductions from what people were paying this winter.
But looking to its Oct. 1 rate change, National Grid is telling its 500,000 customers in Rhode Island to prepare for both residential and commercial rates that haven’t been seen in the state in at least two decades, if ever.
“We’re happy our customers will see some relief on the price of electricity during the upcoming summer months,” said Brian Schuster, director of customer and community management with National Grid Rhode Island. “But… as energy prices remain extremely volatile due to global issues, the outlook for winter electric prices could mean significant rate increases. And while we can’t control the cost of the energy supply, we do want to encourage customers to prepare now for that potential.”
Under the new estimate of 16.8 cents, the residential rate for Rhode Island customers would be more than 50% higher than last winter’s rate, and more than double the current rate that went into effect April 1.
In Maine, state numbers show electricity supply rates have reached the highest levels in at least 10 years. The 2022 supply rate for most Central Maine Power customers went up more than 80%, adding about $30 to the average monthly bill.
The next rate change for Eversource customers in Connecticut and Massachusetts is scheduled for July 1, and Aug. 1 for New Hampshire. The proposed electricity supply rate change for western Massachusetts, for example, is about an 11% increase from the current rate, while the eastern Massachusetts rate is expected to be filed later this month. That’s not a total bill increase, per se, but rather an increase to the supply portion of the bill.
“We know there is never a welcome time for news of higher prices and we work with our customers every day to find payment assistance programs, energy efficiency solutions or other options to help,” said Hinkle.
Eversource customers can use between 25-35% more electricity during hot summer months, Hinkle said. The company encourages customers who are struggling to pay their utility bills to “reach out so that we can help find the best solution for their individual case, even if they have never qualified for or needed assistance before.”
The exorbitant cost of natural gas will persist as long as the Russian invasion of Ukraine does, too, said Birchard, leaving the New England region vulnerable to those price fluctuations. In addition, New England hasn’t taken strides in clean energy alternatives as fast as other regions, she noted.
“In the near term, the region needs to activate demand management tools to reduce costs over the next year,” she said. “During that time, we need to expedite market reforms to reduce our over reliance on natural gas.”
What is ISO-New England’s role?
Birchard asserted that ISO-New England has been “lagging behind.” Five out of six New England states have set strict emissions-based climate goals, and yet, “ISO-New England has made the electric grid increasingly reliant on natural gas rather than accelerating clean energy,” she contended.
“ISO-New England needs to catch up with the states and protect its consumers from these types of (financial) impacts, as well as climate impacts.”
ISO-New England, which is overseen by the Federal Energy Regulatory Commission, is “one part of a regional energy system” that involves state and federal regulators, argued Kakley — a part responsible for administering wholesale energy markets based on federal law.
“When you look at the evolution of the power system over the last 25 years or so, there has been a significant increase of natural gas in New England that has replaced coal, oil and nuclear,” he said. “As we find ourselves looking at the clean energy transition, we’re seeing those older legacy resources retire, but we’re seeing delays on the development and connection of clean energy resources intended to take their place.”
Read the full article in The Providence Journal here.