Taunton Call – Taunton, MA, By Ben Thompson, Jul. 4, 2015
Although New England residents already pay for electricity at a higher average rate than the rest of the contiguous United States, issues with the regional capacity and energy markets may continue the upward pricing spiral for the next several years.
ISO New England Inc., the independent system operator for the region’s power market, held its ninth Forward Capacity Market auction in February to plan ahead for power demand and generation. The annual auctions are used to set pricing and obligations for New England energy generators three years in advance of when they will be needed; ISO New England’s FCA 9, held Feb. 2-4 this year, issued results affecting the period from June 1, 2018, through May 31, 2019.
“It’s kind of like an insurance policy,” explained Lacey Girard, a media relations representative from ISO New England. “The auction is designed to send the price signals to tell the investors that more capacity is needed.”
Most New England auction zones saw a slight capacity price increase from last year’s auction, but an inadequate supply predicted for the Southeastern Massachusetts and Rhode Island zone flat-out cancelled regular bidding and triggered higher “administrative pricing” for both existing and new resources in the area.
While the rates released from ISO New England’s FCA most directly impact electricity generators, not individual consumers, past increases for them have corresponded to rising prices for both retailers and, by extension, the customers. The average rates determined at ISO auctions have been slowly rising since 2010 and larger pricing increases have occurred in recent years.
“The floor price went away and, at the same time, a lot of generators told us they were retiring,” said Girard. “The region quickly went from having excess capacity to having tight supply.”
The reason behind many of those recent retirements was the phasing out of traditional means of generation such as oil and coal, and the rise of a new, cleaner resource.“The reason that we’ve seen all these retirements in New England is really a function of what’s happening with natural gas,” Girard said. “We had a big boom in natural gas generation in New England.”
Even though the advent of natural gas had a hand in closing many established generators, its popularity and the capacity shortfall have led companies to step up their efforts in providing the fuel.
In addition, a large portion of recent rate hikes consumers experienced stemmed not from the capacity market, but from the energy market. Those hikes can be at least partially attributed to the extreme cold wave of last winter, the record-breaking snowfall of this winter and natural gas pipeline constraints that were only increased by the inclement weather. And, while the region’s generators have been catching up with the capacity expectations, future auctions and the state of the system have the potential to balance out pricing.
“The higher prices have drawn new capacity to the region,” Girard said of the possibility. “If there’s a lot of excess capacity, prices may tend to be mitigated.”
Until then though, prices are expected to increase to their highest level in years. The SEMA/RI zone pricing for new resources coming into the 2018-19 period was set at 17.7 cents per kilowatt-hour at the FCA 9, the highest since the inception of ISO’s forward capacity actions and nearly double what the rest of New England generators are set to pay.