Marc Brown: New England's shortsighted electricity policies

This wholesale electricity costs haven’t reached the historic levels seen during the 2013-2014 winter, but that doesn’t mean that all is well with New England’s electricity markets. We still have the highest regional electricity costs in the United States, and impending capacity shortages will be a challenge to policymakers for years to come.

ISO-New England, which operates New England’s power grid, has repeatedly warned that 8,000 megawatts (25 percent) of New England’s electricity capacity has either retired or is “at-risk” of retiring. ISO’s calculations don’t include Pilgrim (Massachusetts) or Millstone (Connecticut) nuclear plants, which represent an additional 2,500 mw that some experts have considered to be at risk of closing.

How did we get here? Over the past 15 years, New England has implemented short-sighted electricity policies that have led to a hodgepodge of mandates and regulations that favor renewable energy generation and state-decreed long-term contracts between electricity suppliers and renewable electricity generators.

A significant factor in the premature closing of the Vermont Yankee nuclear plant was the continued expansion of the renewable portfolio standard and purchase power agreements that accompany them. Add that to the federal production tax credits that benefit wind farms, giving them a $50/mwh head start on their competitors in the marketplace. This allows them to submit negative bids into the market, artificially depressing prices, which provides short-term savings, but ultimately leads to more base load retirements and long-term pain for ratepayers.

So why have electricity prices not reached the historic heights of last winter? Two reasons: First, it has not been as cold this winter and this has put less pressure on electricity demand. Second, and more importantly, we have had an increase in liquefied natural gas (LNG) imports mainly due to the inclusion of LNG in the winter reliability program.

The winter reliability program was implemented last winter (without LNG) and was largely responsible for keeping the lights on during last winter’s cold snap. It has played a similarly important role this January. This out-of-market program is designed to incentivize oil, natural gas and dual-fueled generators to carry inventory (oil) or to contract for fuel (LNG), ensuring that they have sufficient fuel reserves to operate when called upon.

Last summer, New England’s winter LNG strip prices were being offered with the highest forward prices, which means that LNG tankers from Trinidad chose New England over Europe or Asia. The Northeast Gateway, an LNG receiving facility located 13 miles off of the coast of Boston, has provided the region with an additional 1 billion cubic feet of LNG this winter from a facility that has laid dormant since the spring of 2010.

We can thank ISO’s changes to the winter reliability program for the increased LNG supplies, but is this a long-term solution? While the program has kept the lights on and the influx of LNG supplies have suppressed prices this winter, it would be foolhardy to depend on LNG imports as a long-term solution to future electricity supply shortages.

The ongoing debate on electricity prices has focused on natural gas pipeline expansion because of our growing reliance on natural gas for generation. There have been a number of pipeline projects proposed throughout New England, but proposals like Kinder Morgan’s Northeast Energy Direct Project have been met with fierce opposition from residents in both Massachusetts and New Hampshire.

When faced with policy decisions, our elected officials need to answer one simple question: Will passing this bill raise the cost of electricity? If the answer to that question is yes, then their vote on the bill needs to be no. Until that happens, we will continue to lose jobs to other parts of the country. For those who disagree, maybe you should speak to the thousands of out-of-work millworkers in Maine or machinists in New Hampshire and hear what they have to say.

Marc Brown is executive director of the New England Ratepayers Association.