Want to Avoid Painful Price Spikes? End the Dependency on Fossil Fuels

Many New England electric and gas utilities will be charging customers more this winter because of sharply rising fossil fuel prices. These price spikes come when families and businesses are already facing increased costs due to historic inflation. Both inflation and rising oil and gas prices stem in large part from the impact of the global pandemic.[1] But volatile fossil fuel prices are nothing new, and the region must use the tools at hand to protect consumers from these impacts, including decoupling the economy from fossil fuels as rapidly as possible. The answer is not to double down on more gas, oil, and pipelines — which will always be volatile – but to electrify buildings and transportation and to bring more solar, wind, flexible load like electric vehicles, and storage into the region’s energy mix.

Why Are Prices Spiking?

The pandemic, extreme weather, and international instability are driving price spikes in New England and around the globe. Spikes in natural gas prices not only mean higher heating costs for those who heat with gas, but also rising electric rates because New England is over-reliant on natural gas as a fuel for electricity generation, in addition to heating. It is this reliance that the region must eliminate to decouple its utility bills from the risks and price volatility of fossil fuels.

New England is not the only region paying more. The entire country faces rising natural gas prices in part due to increased exports abroad. Because prices for gas are even higher in Europe and Asia, U.S. producers have an incentive to export large quantities of gas, further driving up domestic prices.[2] In addition, earlier in the year, U.S. natural gas production dropped by its largest monthly decline due to a record-breaking cold snap in the lower 48 states.[3] That freeze event paralyzed many states, resulting in substantial loss of life as well as economic damage. It simultaneously reduced gas production in the affected states.[4] By summer, just a few months later, parts of the U.S. were experiencing life-threatening summer heat waves that caused higher than normal air conditioning demand.[5] Already-diminished gas supplies were consumed at higher rates than normal to fuel electricity for cooling. European gas prices have also been surging because of supply issues, including threats from non-democratic Belarus to cut off gas supplies to the rest of Europe.[6] All of this has contributed to volatile pricing and constrained supply for natural gas in the U.S. and around the globe.

What Impacts Does New England Face from Price Spikes?

Here are some of the impacts New England faces right now:

Electricity rates are rising with little notice in Maine. Starting January 1 Central Maine Power will increase its standard offer rates by 83% and Versant Power will raise its standard offer rates 88%.[7]
Liberty Utilities plans to raise rates for natural gas customers in New Hampshire, including customers who already locked in fixed prices for the winter.[8] Liberty says it didn’t predict this level of price volatility when it originally set its fixed prices.
Eversource has already raised rates for some heating customers in New England by about 14% and is urging customers to take advantage of weatherization and energy efficiency programs to control rising costs.[9]
The EIA estimates that the cost of heating oil will increase by 33% this winter. Prices are already on the rise in New England.[10]
The fuel oil often used as backup for certain power plants in case of polar vortex-like weather events is reportedly not well-supplied.[11] Although meteorologists aren’t anticipating a severe winter for the region, it’s never clear when a polar vortex might develop.[12]

In the Near Term, Is There Any Relief in Sight?

What help is there this winter to keep costs down? Here are some rays of hope:

Weatherization and Energy Efficiency Reduce Costs. Weatherization and energy efficiency will help control costs even when prices spike. Fortunately, the region is already reaping the cost- and energy-savings of past energy efficiency investments, keeping costs and energy demand lower than they otherwise would be.[13] There are efficiency programs right now that will help more families and businesses weatherize and conserve energy to cut costs.[14] Even in New Hampshire, where state energy regulators recently made the poorly timed decision to cut funding for cost-saving weatherization investments and customer support programs, there are options to control costs.[15]
Federal and State Relief Programs Target Middle- and Low-Income Residents. The federal government has announced a new program that will use part of the $1.9 trillion COVID relief budget to help with utility bills, directing additional funds to utility financial assistance for both low and middle-income families, as well as emergency rental assistance.[16] In addition, most New England states have state-specific relief programs such as the UniteCT program in Connecticut to help residents stay warm and safe.[17]
Mild Weather Could Lower Costs and Relieve Pressure on Supplies. Warmer than average weather in New England or other parts of the world could reduce stress on supply, and new oil deliveries could replenish backup fuel sources. Although prices are still up over 2020, they fell in November as compared to October in response to relatively mild weather.[18] Meteorologists are now predicting that temperatures will rise 10 to 20 degrees above average for an extended time across most of the U.S. this winter, including New England.[19] If this proves true, it could provide substantial relief.

What Is the Long-Term Solution?

Fossil fuel price volatility is not new in New England and won’t be solved by more gas pipelines. Fossil fuel supply and price volatility is an old phenomenon that has raised anxiety and stoked fear mongering about New England’s winter electricity prices and reliability for decades. Sometimes, politicians and companies that stand to benefit from the expanded use of natural gas argue it means we should install more gas pipelines. But pipelines would place a massive financial burden on New England consumers and could never eliminate the volatility that comes with resource-constrained fossil fuels imported into the region. In addition, more fossil fuels would cause more extreme weather events, driving up the costs of climate change further for New England’s communities. Common sense says no to any more costly fossil fuel infrastructure. On the contrary, the long-term solution is to eliminate reliance on fossil fuels.

Acadia Center is working with decision makers and communities across the region to advance solutions to fuel price volatility and the other energy challenges that affect New England. These solutions include weatherization, energy efficiency, and rapid decarbonization of the region’s energy mix.

[1] See U.S. Energy Information Administration (“EIA”), Short-Term Energy Outlook, Winter Fuels Outlook, October 2021, available at https://www.eia.gov/outlooks/steo/report/WinterFuels.php.

[2] See id. (“Despite the high U.S. natural gas prices, futures prices for Henry Hub have traded at steep discounts to prices in Asia and Europe… This price differential has led to record volumes of U.S. LNG exports, especially to destinations in Asia and Europe. In addition, high prices in Europe and Asia have contributed to upward price pressure for U.S. natural gas, as those markets import more U.S. LNG cargoes.”).

[3] EIA, Today in Energy, February 2021 weather triggers largest monthly decline in U.S. natural gas production (May 10, 2021), available at https://www.eia.gov/todayinenergy/detail.php?id=47896.

[4] L. Brun Hilbert and J.F. Hallai, Natural Gas Production in Extreme Weather, Pipeline & Gas Journal, June 2021, Vol. 248, No. 6, available at https://pgjonline.com/magazine/2021/june-2021-vol-248-no-6/guest-commentary/natural-gas-production-in-extreme-weather.

[5] Suzy Khimm and Joshua Eaton, NBC News, As deadly heat waves spread, access to air conditioning becomes a lifesaving question (Aug, 20, 2021), available at https://www.nbcnews.com/news/us-news/deadly-heat-waves-spread-access-air-conditioning-becomes-lifesaving-question-n1277213.

[6] BBC, Belarus threatens to cut off gas to EU in border row (Nov. 11, 2021) (Alexander Lukashenko: “If they impose additional sanctions on us… what if we halt natural gas supplies?”), available at https://www.bbc.com/news/world-europe-59246899.

[7] https://www.necn.com/news/local/maine-electric-bills-set-for-big-jump-amid-worldwide-crunch-in-supply-and-demand/2619580/

[8] https://www.wmur.com/article/liberty-utilities-plans-to-increase-price-for-natural-gas-fixed-rate/38295359

[9] https://www.courant.com/business/hc-biz-winter-rising-energy-prices-20211103-sh7qkz2hivcchne4e47dssnpny-story.html

[10] https://www.eia.gov/todayinenergy/detail.php?id=50116&src=email

[11] S&P Global Platts, ISO-NE Updates Power Generators Ahead of Winter Amid Supply Chain Constraints (October 1, 2021).

[12] https://www.nbcboston.com/weather/stories-weather/noaa-winter-snow-cold-forecast-for-massachusetts-new-england/2529727/

[13] https://acadiacenter.org/next-generation-energy-efficiency/

[14] E.g., https://www.masssave.com/saving/residential-rebates/home-insulation

[15] https://newhampshirebulletin.com/2021/11/25/the-high-cost-of-home-heating-and-what-you-can-do-about-it/?fbclid=IwAR3og4gqemK_GlwJLSXcp08VPFMj9Co2E5O06BlbIHce5X2Nh-tWVUYrNFU

[16] https://www.cnn.com/2021/11/18/politics/heating-costs-biden-administration/index.html

[17] https://portal.ct.gov/Office-of-the-Governor/News/Press-Releases/2021/11-2021/Governor-Lamont-Advises-Residents-of-Efforts-To-Mitigate-Impact-of-Global-Increase-in-Energy-Costs

[18] EIA, Short-Term Energy Outlook (Dec. 7, 2021), available at https://www.eia.gov/outlooks/steo/.