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A plan to prevent winter blackouts that could more than double the cost of a fuel storage program from about $150 million to as much as $400 million a year is being criticized by New England consumer advocates who say electric customers shouldn’t pay higher rates for a program that hasn’t been proven to work.
The regional grid operator ISO-New England is asking the Federal Energy Regulatory Commission to let it raise the price it pays to power plants to store fuel for winter months. ISO-New England told FERC that it set the price for the Inventoried Energy Program in 2019 based on the market price of liquefied natural gas at the time, but that global spikes in the price of gas over the past two years mean that price isn’t enough to entice power plants to hold reserve fuel to ensure they can run during stretches of extreme cold.
Connecticut’s consumer counsel Claire Coleman, who joined with consumer advocates in Maine and New Hampshire, and Massachusetts Attorney General Andrea Campbell to oppose the change, said ISO-New England hasn’t shown that the program will improve reliability of the region’s electric grid.
“While we understand that maintaining reliable fuel resources during the winter months is fundamental to our region’s power grid, ISO-New England needs to do its homework before proposing to burden Connecticut’s residents and businesses with even higher electricity price,” Coleman said.
New England’s heavy reliance on natural gas to run power plants and heat homes, and a limited supply of that gas, put the region in a precarious spot every winter. High winter power prices and dire warnings from ISO-New England and the North American Electric Reliability Corporation that the region could face blackouts during long cold snaps have become routine.
Power plants that participate in the Inventoried Energy Program are paid a set rate to be available for the grid operator to call on them to run on extremely cold days. The plants are paid ahead of time to hold an inventory of energy in reserve, at a rate meant to give them the minimum compensation they would need to buy and store that fuel.
The Russian invasion of Ukraine added another element of uncertainty to the region, as New England was forced to compete with European countries for supplies of liquefied natural gas, or LNG, that it typically imports to bypass those winter constraints – raising prices to unprecedented highs.
ISO-New England spokesman Matt Kakley told CT Examiner that the program was first approved by FERC long before the war drove “significant price volatility” in the global market for LNG.
ISO argued the current price of $82.49 per megawatt-hour of electricity they hold in reserve is too low to draw power plants to participate. Their proposal would index the price paid to generators to the market price of LNG.
“Indexing rates to actual prices in the global marketplace would ensure the program acts as intended to increase system reliability during cold weather events,” Kakely said. “If global LNG prices decline in the coming years, rates in the program would decline, as well.”
Dan Dolan, president of the New England Power Generators Association, which represents power plants in the region, said the prices set in 2019 have “no basis in the reality of what’s actually happening in the fuel market” today. Because the program is voluntary, generators won’t participate and store fuel if it doesn’t make financial sense, he said.
“If the point of this is to drive more of those decisions, then it has to be linked to what the fuel prices are actually in the market,” Dolan said.
But Connecticut’s Office of Consumer Counsel said the cost of the program is ultimately passed on to electric customers, and tying that cost to global LNG prices exposes customers even more to winter volatility in gas prices.
OCC economist JR Viglione told CT Examiner that the actual cost of the program to customers is unclear because it’s included in the price charged by electric suppliers, the specifics of which are considered proprietary trade secrets.
OCC attorney James Talbert-Slagle said the total cost of the two-year program could increase from about $300 million to $800 million if prices reached the cap proposed by ISO. Connecticut accounts for about a quarter of the electric load in New England, he said, and those costs would be paid by Connecticut customers.
Kakely said the $800 million figure is the “upper bounds” of potential costs, if all eligible resources participated fully and global LNG prices reached the proposed cap. He said that price has never been reached, even in the most volatile periods of 2022.
“We would only know the cost of the program looking backwards after it has been implemented, so that’s why we’re trying to step in now and protest the implementation,” Talbert-Slagle said. “The benefits of the program have not been firmly established by ISO-New England, with a comprehensive analysis of why these costs are justified, considering we have several redundant programs [for winter reliability].”
Dolan said he didn’t think the program was redundant. He said it’s meant as a temporary bridge between ISO-New England’s former Winter Reliability Program – which paid generators to store oil and gas – and other “market mechanisms” that are being developed now.
“It is kind of the next generation of those programs,” Dolan said. “And it is meant to be temporary, and then be replaced by a more market-based mechanism to firm up fuel supplies for those winter months.”