Businesses in Massachusetts, Connecticut, Maine, New Hampshire and Rhode Island looking to save money on their electric bill need to shop for a low rate now before cold weather sets in, as winter weather could trigger a repeat of last year's price spikes and volatility in the wholesale electric and natural gas markets.
New England is increasingly reliant on natural gas to fuel its power plants. However, natural gas pipeline capacity into New England is constrained, and new pipelines are not being built. That means on severely cold days -- like last January - a combination of natural gas demand for both heating and power generation can leave the region, or certain local areas, short of natural gas supplies. These shortages spike both natural gas and electric prices, and if you have not shopped ahead of time, you could be exposed to paying over ten times the normal rate for electricity.
SNL Energy recently analyzed New England natural gas market data over the previous two winters and found that despite the increased availability of Marcellus Shale production, "deliverability constraints still remain a prominent feature of the New England market, particularly at Algonquin."
SNL said that for the past two winters in the Northeast, deliverability constraints have resulted in "blowouts" in the basis at Algonquin and TET M-3, with the extent and duration of the blowouts supported by the level of storage.
Fearing a repeat of last year's near blackout due to constrained natural gas supplies (which left needed power generation offline because gas was unable to get to the power plants), ISO New England, which runs New England's electric grid, has already instituted backstop measures to try to assure reliability.
However, it remains to be seen if these measures will be effective, and even if they keep the lights on, if they will avoid wholesale electric prices which may spike to $1,000 per megawatt-hour. When gas supplies are not constrained, New England wholesale power prices during winter peak hours are typically about $50 per megawatt-hour.
With the increasing demand on natural gas as a heating and power generation fuel, longer cold snaps than those experienced last year could lead to electricity shortages, and force ISO New England to dispatch costlier oil-fired power plants because cheaper natural gas power plants can't get fuel.
This could lead to a repeat, or worse, of the price spikes seen last year in New England electric rates in January and February.
Customers seeking to avoid these price spikes should shop now for a low electric rate. Shopping for a low electric rate proactively means electric customers in Massachusetts, Connecticut, and other New England states won't get caught flat-footed, and can be prepared for what the winter brings to the market.