National Grid of Massachusetts recently submitted a tariff request that will raise electricity rates for its residential customers by nearly 20 percent and its industrial customers by 30 percent. These increases will have a major impact on jobs, as a 30 percent increase in electricity rates to all Massachusetts’ industries would result in $600 million in additional electricity costs annually — and countless job losses. The elderly and poor will also be highly impacted as a greater portion of their monthly expenses go to energy costs, leaving them with less money for food, medicine and other essentials.
These rate increases are a direct result of New England’s over-reliance on natural gas for electricity generation, which will only be magnified as reliable base-load power options like Brayton Point and Vermont Yankee are retired. Immediately after Entergy announced the retirement of Vermont Yankee effective at the end of 2014, the Algonquin Citygate natural gas futures basis price rose 50 cents per million Btu. Natural gas set the price for electricity in New England during 80 percent of operating hours — which leaves ratepayers extremely vulnerable to increases in natural gas prices.
The explosion of the natural gas industry nationwide has been a boon to our economy and a benefit to ratepayers by lowering electricity costs. Unfortunately for New Englanders, the benefits of low-cost natural gas are tempered by restricted natural gas pipeline capacity in the Northeast. New England electricity generators have become increasingly reliant on natural gas over the past two decades, and electricity from natural gas now constitutes over 50 percent of power generated in the region — up from just 5 percent of generation in 1990.
Additionally, local distribution companies account for most of the firm commitments on pipeline capacity in the region in order to provide home heating fuel to customers in the winter — resulting in restricted natural gas supplies for electricity generation and sharp price spikes in the region on colder winter days. According to the U.S. Department of Energy, on Jan. 25 natural gas prices in New England reached $35 per million Btu while prices in the rest of the country remained below $4 per million Btu. In February electricity prices increased 400 percent during one cold spell.
Due to environmental constraints, new coal and nuclear plants are off the table, and currently 20 percent of the region’s capacity is supplied by uneconomical oil-fired plants that are utilized only when demand is high or scarcity conditions call for them to be dispatched — but at a premium. Oil-fired units have value to the grid because they provide capacity and reliability, but they shouldn’t be considered as a long-term solution to our electricity needs.
Putting all of our eggs in the basket of one fuel source is asking for trouble and will only further add to what are already the highest electricity rates of any region in the lower 48. Legislators and stakeholders need to take a more discerning look at the future of our energy grid and promote policies that will provide the region with dependable, reliable, affordable electricity, not one that is profligate with politically preferred projects that offer nothing but high electricity rates to the individuals and businesses that pay the bills.
Marc Brown is executive director of the New England Ratepayers Association.MORE IN Commentary
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