Dave Solomon's Power Plays: What crisis? Prices, supply not a concern in 2015DAVE SOLOMON
January 14. 2015 8:32PM
With all the hand-wringing about the New Hampshire energy crisis, some good news is in order.
This winter, so far, has actually been pretty good for energy supply and prices on the wholesale market.
This is due in part to planning and in part to good luck, meaning mild weather. No matter how cold it may seem on any given day, the average temperature in December was well above last year, and January is off to a good start.
That’s a far cry from January 2013, when the region came dangerously close to roving brownouts due to a shortage of natural gas needed to keep power plants online.
Those close calls were of such concern to regulators at the Federal Energy Regulatory Commission that they ordered the operators of the New England power grid to come up with a winter reliability program for 2014.
That program couldn’t stop natural gas prices from soaring last winter, but it did ease tensions in the control room at ISO-NE, the independent operator of the New England power grid.
This winter, the combination of the reliability program, milder temperatures and reduced demand have so far had a significant effect on the energy market in New England.
Energy supply has been more than adequate to meet demand, even on the coldest days, and spot prices for natural gas and wholesale electricity are not as high as last year.
According to the folks at ISO, total energy usage in December 2014 was about 5 percent lower than total energy usage in December 2013, while average wholesale power prices and average natural gas prices at the trading hubs are down more than 50 percent from the same period last year.
The price of natural gas delivered to New England is still high, trading on Jan. 14 at $11.50 per MMBtu (million British thermal units), compared to $4.48 per MMBtu delivered to New York City and $2.82 per MMBtu delivered in the Southwest. But in January of last year, New England prices for natural gas ranged around $50 per MMBtu.
What a difference a year makes.
The average temperature in December of 2014 was 5 degrees warmer than in December of 2013. “So far we’ve seen colder weather in January, but these are the winter conditions we expect and prepare for in New England,” said ISO spokesperson Lacey Girard.
The reliability program has also helped by creating financial incentives for power plant owners to buy the fuel they need for the winter. ISO is providing insurance to offset some of the risks associated with those fuel purchase contracts.
Last year that insurance only covered oil purchases, while this year liquefied natural gas was added to the mix.
Participating generators that have oil leftover at the end of the winter are eligible for a payment of $18 per barrel. This winter for the first time generators that contract for LNG will receive an end-of-season payment to offset their unused contract obligations.
The program also pays for some large users to reduce their consumption during periods of peak demand, a program known as “demand response.”
All of this costs money that comes from the ratepayers of New England. In the worst case scenario, the reliability program for this winter could cost as much as $70 million. The cost is likely to come in below that number, but “reliability” comes at a price.
It’s unlikely that consumers will see any of these positive trends reflected in their electric bills this winter.
The state’s four utilities locked in their power purchase contracts based for the most part on last winter’s prices.
But at least we won’t have to worry about brownouts.