With electricity prices skyrocketing, officials from Massachusetts and Connecticut met on Tuesday to discuss options for minimizing price swings and ensuring a reliable source of power – if not necessarily lowering the cost of energy for consumers — as the states move to develop offshore wind.
Last year, Connecticut lawmakers on the Energy and Technology Committee started the legislative session with a hearing on the annual risk of winter blackouts due to limitations on the supply of natural gas into New England, where gas fuels a majority of the region’s electricity.
On Tuesday, a hearing held by Connecticut and Massachusetts utility regulators discussed the same issue of supply, but through a different lens, as New England’s long-running gas supply problems left it vulnerable to price increases in the global market for natural gas, which are largely driving astronomical electric rate increases that went into effect on Jan. 1 for customers of Eversource and United Illuminating.
State Rep. Jonathan Steinberg, D-Westport, House chair of the Energy and Technology Committee, said that, even though it took a rare situation to bring the issue to the fore, it has been a potential problem for years given the well-documented fuel constraints in New England during the winter.
“There are a number of things that we need to talk about on a regional basis beyond just the cost of generation,” Steinberg said. “One of those things that I’m sure we’re going to be talking about in the future has as much to do with transmission and delivery of energy as it has to do with generation.
“We’ve been seeing those costs rise exponentially, and if we don’t get a handle and have a reasonable strategy on how to accomplish that, we will have failed even if we find ways to address the generation problem,” he said.
The PURA hearing, held in response to a call from Senate Democrats to look into how Eversource buys its electric supply, discussed some possible tweaks that could limit the wild price swings seen this year, by diversifying the supply of energy.
State Sen. Norm Needleman, D-Essex, Senate chair of the committee, said that while the state’s process for Eversource and United Illuminating to buy electricity has worked “as good as anyone would have expected” in the past, the current situation shows just how vulnerable Connecticut is to market forces.
Needleman said his concern coming out of the hearing was that, while the war in Ukraine and the chaotic global gas market will hopefully end soon, Connecticut and New England will still be left with a winter reliability problem without a real plan to bridge the gap until new energy sources come online.
“I agree that we need to be very sensitive to not adding fossil fuel capacity, but at this point all things are on the table as far as I’m concerned,” Needleman said. “I’m not comfortable putting my residents at risk, and they are definitely at risk. I think we need to understand that and do everything we can to mitigate that.”
Changes to procurement “work on the margins” of issue
Connecticut Consumer Counsel Claire Coleman said that Connecticut’s plan – last adjusted in 2018 – for procuring electricity has led to “relatively low” electric supply prices since 2015 when a polar vortex led to cost hikes.
Since then, the price of electricity has increased seven times and decreased six times – generally rising in the winter and dropping in the summer – and has stayed below 11.5 cents per kilowatt hour, with the cost usually remaining in the single digits.
“The plan has traditionally given Connecticut lower rates during higher-usage months in the summer when consumers are using more electricity, and higher rates during lower-usage months in the winter months,” Coleman said.
A “laddering” approach to buying power – where Eversource and United Illuminating hold several bids throughout the year to spread out the risk of short-term price spikes – has historically worked to limit volatility in supply prices, she said.
Coleman said the “laddering” approach didn’t work this year because the price spikes were too large and long lasting. She said the state should consider procuring power further in advance, but that there likely wasn’t a procurement plan that could have “fully mitigated this perfect storm that hit energy markets in 2022.”
Marissa Gillett, chair of PURA, said she thought one way to approach the issue was to identify the risks suppliers see that cause them to charge higher prices, and “attack” the components of that risk premium they charge.
Eversource Director of Energy Supply Jim Shuckerow said the main risk suppliers see is the volatility of market price, particularly if they need to buy from the region’s “spot” market to be able to provide enough power to meet their demand. That risk comes in the winter months when gas prices are most volatile, he said.
The second is uncertainty about how many customers are going to get their supply from the standard service rates charged by Eversource and United Illuminating, and how many are going to choose to go with third-party suppliers, he said.
“We’re all buying from the same market, so the prices [between Eversource and United Illuminating, and third-party suppliers] relatively would be the same,” Shuckerow said. “So the real question comes down to the amount of risk that’s being built into the bids we’re receiving.”
PURA Commissioner Michael Caron asked Shuckerow if he thought the procurement process “essentially works,” and if the current situation is an outlier driven by the Russian invasion of Ukraine – a point that Shuckerow said he agreed with.
Caron said he didn’t want Connecticut to “overreact” and throw out a process that has been effective because of an outlier.
“Let’s do what we can on the margins, recognizing there’s so much outside of our control, not just here in New England, but internationally as well,” Caron said.
Reliance on natural gas seen as biggest hurdle to price stability
Shuckerow said that Eversource is “eager” to work with the states to improve procurement, but the underlying issue is a “structural dysfunction” in New England’s market, caused by the region’s reliance on liquefied natural gas which leaves it vulnerable to swings in the global market for gas.
The solution is to diversify energy sources, he said, but the region needs a bridge between now and when there are enough new sources of energy to limit the exposure to gas prices. Shuckerow said Eversource expects that it will be 10-20 years before New England is no longer reliant on natural gas to fuel its power plants.
A transmission line from Quebec would have supplied hydroelectric power equal to about 10 percent of New England’s demand, he said – but that project has been held up by repeated lawsuits and challenges in Maine.
There are similar challenges throughout New England for building new infrastructure that could address the winter gas constraints – especially gas infrastructure – he said.
“It’s not likely that any new pipeline will get built,” Shuckerow said. “LNG facilities also are not being built. It’s been difficult to do either of those through legal reviews.”
Coleman said she didn’t think the transition to renewable energy would take as long as suggested by Shuckerow, and said that there needed to be more state and federal aid for customers to deal with the short-term cost increases, and to make sure they aren’t financing the transition on their own.
But Shuckerow reiterated that New England would need a “bridge” to allow the region to transition to a more diverse supply of electricity. He said the states and utilities should work together to push for solutions, but ultimately it falls to the regional grid operator ISO-New England and federal energy regulators at FERC to make changes – like requiring fossil fuel generators to have an adequate supply of fuel, or allowing the states to create a regional fuel reserve.
Needleman said that a reliable electric supply remains the top priority even if the solutions won’t necessarily lower the cost of energy.
“It’s all hands on deck,” Needleman said. “We all have a role and responsibility in fixing this problem, and we’ll need to figure out something in the region.”