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Another View -- Tony Giunta: New England needs pipeline capacity to lower electric rates

March 31. 2016 11:27PM

A relatively slow 2015 summer season combined with a mild 2015-16 winter has resulted in fairly stable electricity prices across most of New England. But even under these favorable conditions, New England still has the highest electricity rates in the country.

Knowing I’m in the energy field, many people ask why do we pay so much for our electricity and if prices will ever come down.

It takes energy to make electricity.

The major forms of energy are derived from fossil fuels (coal, oil and gas), nuclear fuel, and renewable fuels such as water, wind, biomass and the sun.

Because consumers demand power access to power 24-7 as well as low costs, electrical producers choose fuels that are least expensive and most reliable.

If you were going to build a power plant in New England today, you would want to power it with a fuel source that is abundant, allows you to run reliably at low cost and with relatively low emissions.

As you look for this Goldilocks fuel, power plants located in New England are less than a day’s drive from the Marcellus shale formation, one of the largest natural gas reserves in the entire world.

With advancements in drilling technology, those reserves are now abundantly available and cheap. But possibly the best news of all is natural gas is one of the cleanest burning, lowest emission fossil fuels available.

It’s not surprising that over the past 10 years, New England power plants have chosen natural gas as their fuel of choice.

So if the majority of our electricity is coming from cheap domestic sources, why are electric bills still so high?

Well, the short answer is electrical producers weren’t the only ones who chose their fuel based on all those good characteristics associated with natural gas. Manufacturers, businesses, industries and homeowners want that same cheap reliable low emission fuel for their use, too. With so many consumers choosing natural gas, there’s now a shortage of that fuel during times of peak demand.

But something’s not right. Isn’t Marcellus shale gas abundant? Yes, but the pipeline capacity to deliver that gas has not kept pace with demand.

Because power plants do not reserve capacity on pipelines with firm contracts, power plants are last on the totem pole to receive their share of gas.

Only after demands from firm contract holders like businesses, industry and gas utilities are met will any remaining gas be sold to power plants.

So on the coldest days of winter, those days when both electricity usage and heating requirements are at their highest, electricity producers are unable to access low-cost natural gas from pipelines and must find other higher-cost gas or other sources of fuel to meet demand.

Here in lies the crux of our high cost dilemma. When natural gas producing plants turn off because they lack gas supply, other plants that typically use higher cost fuels and whose cost of electrical production are often much higher turn on. As those higher cost electrons flow onto the grid, someone has to pay for them … and that someone is you and me.

In the Northeast, this scenario has been occurring more and more frequently and for longer durations. It has become so predictable that the electrical markets have reacted by factoring those higher costs of production into their rates.

Consumers are not only paying more for that electricity, we are also paying higher environmental costs as these plants typically use much “dirtier” fuels such as coal, heavy oils, and jet fuel.

So, how do we lower rates? Simply stated, we must increase natural gas pipeline capacity into New England. Again, the largest lowest cost natural gas fields in the world are a couple of hundred miles away.

Lowering the cost of electricity is not a question of if we can find more natural gas supply, it’s merely a function of getting enough gas into New England such that we no longer have to rely upon producers who use high-priced, high-emission fuels to meet peak demands.

Bottom line, having ample quantities of domestic natural gas available to meet New England’s peak demands will not only lower electric rates, it will also improve air quality throughout the region, a true win-win for all concerned.

Tony Giunta is a senior energy consultant with Nobis Engineering.

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