Wholesale Power Prices in New England Jumped 55% in 2013
Energy Wire | March 20, 2014
Higher natural gas prices and a lack of adequate pipeline capacity pushed wholesale prices for electricity up 55 percent in 2013, according to data released yesterday by ISO New England, the region's grid manager and operator of its wholesale electricity markets.
The news comes as no surprise as New England's six states are literally at the end of the nation's energy pipeline. What to do about it is another matter.
"The wholesale price of power in New England's competitive markets is based on input costs," said Gordon van Welie, president and chief executive officer of ISO New England.
"Higher fuel prices result in higher power prices. New England sits on the doorstep of the Marcellus Shale, which has increased supply and lowered natural gas prices significantly, at least in areas of the country that can access that gas," van Welie said. "However, the limited pipeline capacity coming into New England means that sometimes natural-gas-fired generators have difficulty getting fuel, and that not only pushes up prices, it also creates a risk to reliable operation of the power system."
The situation van Welie outlined was starkly on display in January when a series of bitter-cold spells drove electricity prices in the region to record levels. "The high prices of natural gas this winter, due to pipeline constraints, pushed up the price of wholesale electric energy," said ISO spokeswoman Lacey Girard.
"In fact, the total value of the electric energy market alone in New England in December, January and February was $5.1 billion; that compares to $8.0 billion for the full year of 2013 and $5.2 billion for the full year of 2012 (which saw the lowest prices and energy market value since March 2003, when markets in their current form were implemented)," she said in an email.
Some stakeholders are pinning their hopes on a proposal offered by the region's governors in December to fast-track construction of hundreds of miles of new natural gas pipelines and transmission lines.
Part of that proposal would seek a change in the ISO's tariff to allow it to collect money to support new gas pipelines from electricity customers.
"How it would work is still very much under discussion, but ISO New England would serve only as a billing and collection agent," Girard said. "The ISO only has authority to bill companies doing business in the regional electricity marketplace; the companies would likely pass the costs along to their customers. However, the details surrounding a tariff change, cost allocation, and how the pipeline would get built are under discussion and have yet to be determined," she said.
"Without investment in new infrastructure, New England will face more of these price spikes, our competitive advantage will erode and we'll have a significant capacity challenge in the next five to six years when these old, dirty oil and coal plants go offline and we won't have the means to replace them," said Steven Clarke, assistant secretary of energy in Massachusetts.
Infrastructure causes 'significant differential' in gas prices
"We've got some concerns. We don't like subsidies. Period," said Dan Dolan, president of the New England Power Generator Association, whose members include Exelon Corp., NRG Energy Inc., Calpine Corp., Entergy Corp. and PSEG Co.
"There is absolute recognition in the marketplace that with the move that we've had over the five or six years to increase natural gas use for power generation, the natural gas transportation infrastructure hasn't caught up in New England. We haven't had a major new pipeline built in 20 or 30 years," he said. As a result, there is a "substantial differential" between natural gas prices in New England and New York or the Mid-Atlantic where access to Marcellus gas is easier, he said.
Dolan noted that the market is starting to respond as there are "four major new pipeline proposals on the books, a number of which have received contracting commitments to begin the development process."
The pipeline subscribers are local gas distribution companies, not electricity generators. But even so, "this is going to create a substantial increase in gas supply into the marketplace available to market participants like power generators. It doesn't serve as a panacea; it's not that silver bullet, but it helps narrow the amount of days where we have peak period challenges from an operations perspective" in meeting electricity demand, he said.
NEPGA's concerns are that an ISO-collected fee could "have some pretty unfortunate unintended consequences such as driving out potential economic generators and exacerbating" the pressure on coal and nuclear plants to close. "By underwriting and subsidizing pipeline development, it will accelerate" a move to more use of natural gas for power generation, Dolan said.
The ISO data is a "major concern," said Connecticut Consumer Counsel Elin Katz.
"Doing nothing has a tremendous cost for consumers. I'm supportive of any creative idea that can solve this problem as soon as possible," Katz said. "The natural gas pipeline situation is going to continue to contribute to high energy prices until we can get it resolved."
Connecticut's "aggressive energy efficiency programs" can help reduce consumer electricity use in the short term, she said.
"You have to look at your trade-offs," she said, referring to the proposed customer charge to support pipeline development. "I'd rather pay a little more and solve the problem than continue to pay astronomical prices and know that it's going to continue into the future."
Weather drove demand
Demand for electricity rose slightly in New England in 2013, by about 1 percent to 129,350 gigawatt-hours (GWh), the ISO said. When annual variations in weather are factored out, which allows demand to be evaluated on a comparable basis from year to year, electricity consumption would have dropped 0.4 percent to 127,754 GWh in 2013 compared with the weather-normalized 128,249 GWh of electricity consumed in 2012.
Preliminary ISO data show that the average price of wholesale electric energy rose to $56.06 per megawatt-hour (MWh) in 2013, up from 2012's historic low price of $36.09/MWh.
Natural gas is the predominant fuel generating the region's electricity, at about 46 percent in 2013, so wholesale power prices tend to track the price of natural gas. In 2013, preliminary data show that the price of natural gas averaged $6.97 per million British thermal units (MMBtu), up 76 percent from the 2012 record low price of $3.95/MMBtu.
The higher wholesale electricity prices will eventually have an effect on the retail rates paid by consumers, which are set and overseen by state regulators, the ISO's Girard said. But exactly how much of an effect will depend on the terms of the individual, bilateral contracts signed by the region's utilities with generators for future supply.
FERC Signs Off On Coordinated Transaction Scheduling For PJM And NYISO
North American Windpower | March 20, 2014
The Federal Energy Regulatory Commission (FERC) has approved tariff revisions for the New York Independent System Operator (NYISO) and PJM Interconnection that PJM says will help improve scheduling of wholesale electricity sales between the two regions.
According to PJM, FERC's approval of coordinated transaction scheduling (CTS) will help enable PJM and NYISO to make more efficient use of the transmission lines that connect the two regions. CTS, PJM adds, will help improve scheduling efficiency, maximize transmission utilization and reduce counterintuitive interregional transmission schedules by explicitly incorporating projected price differences between the NYISO and PJM markets into interregional scheduling decisions.
PJM notes that technical enhancements include increasing the frequency of scheduling energy transactions over the transmission network between the two regions and implementing software changes to enable the two grid operators to coordinate their selection of the most economic transactions available.
"Over the past year, PJM and New York market participants successfully guided the CTS proposal through each region’s stakeholder process," comments Stephen G. Whitley, NYISO president and CEO. The result of these collaborative efforts is enhanced grid operations throughout New York and the Mid-Atlantic and savings for consumers across the regions."
Implementation of CTS is scheduled for November, PJM reports.
Natural Gas and Oil Market Update
Natural Gas Supplies Down: EIA
MarketWatch | March 20, 2014
Natural Gas futures on Thursday lost more ground after the U.S. Energy Information Administration reported that supplies of natural gas fell 48 billion cubic feet for the week ended March 14. The decline was less than the market expected as analysts surveyed by Platts forecast a fall of between 57 billion cubic feet and 61 billion cubic feet. Total stocks now stand at 953 billion cubic feet, down 932 billion cubic feet from a year ago and 876 billion cubic feet below the five-year average, the government said. April natural gas was at $4.39 per million British thermal units, down 9 cents, or 2%. It was trading at $4.44 before the data.
WTI Crude Declines First Time in Three Days as Brent Gap Widens
Bloomberg | March 20, 2014
West Texas Intermediate crude fell for the first time in three days, widening its discount to Brent oil, as the dollar strengthened and U.S. stockpiles grew for a ninth week.
WTI climbed as much as 0.8 percent. The dollar rose for a second day against the euro after the Federal Reserve signaled yesterday it will probably raise interest rates by the middle of next year. Crude supplies climbed 25.6 million barrels in the nine weeks ended March 14 to near a four-month high.
WTI futures for April delivery, which expires today, slipped 52 cents, or 0.5 percent, to $99.85 a barrel at 9:08 a.m. on the New York Mercantile Exchange. The more-active May contract fell 48 cents to $98.69. The volume of all futures traded was about 14 percent below the 100-day average for the time of day.
Brent for May settlement fell 34 cents, or 0.3 percent, to $105.51 a barrel on the London-based ICE Futures Europe exchange. The European benchmark was at a premium of $6.82 to WTI for the same month on ICE. The spread narrowed for a third day yesterday to close at $6.68, the smallest gap since March 7.
EIA - Weekly Natural Gas Storage Report
Working gas in storage was 953 Bcf as of Friday, March 14, 2014, according to EIA estimates. This represents a net decline of 48 Bcf from the previous week. Stocks were 932 Bcf less than last year at this time and 876 Bcf below the 5-year average of 1,829 Bcf. In the East Region, stocks were 399 Bcf below the 5-year average following net withdrawals of 35 Bcf. Stocks in the Producing Region were 351 Bcf below the 5-year average of 742 Bcf after a net withdrawal of 11 Bcf. Stocks in the West Region were 126 Bcf below the 5-year average after a net drawdown of 2 Bcf. At 953 Bcf, total working gas is below the 5-year historical range.
NYMEX Natural Gas Week-to-Week Price Change
Natural Gas Futures - Five Year Price
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