The unprecedented spikes in electric rates that are anticipated from some of New Hampshire’s largest utilities this winter may be the new norm.
“We don’t think this is a one-year thing. This is going to be, at least in the near term, an every winter thing,” said Robert Scott, one of three commissioners for New Hampshire’s Public Utilities Commission.
New Hampshire Electric Coop’s rate is rising 12.2 percent, while Liberty Utility and Unitil winter prices are going up roughly 50 percent.
These increases, which are the result of a deregulated electric industry and an over-reliance on natural gas, have energy officials, stakeholders and environmental advocates bustling to fix a problem that has no easy solution.
The cause of the spike
The origin of the problem dates back to 1996, when the state began restructuring the electric industry. The state replaced vertical integration with a competition-based design.
Instead of a single electric company doing it all (generating or buying the power, transmitting it over high-voltage lines and distributing it to customers), there was suddenly competition at the level of generating electricity.
“When we restructured, there was an influx of natural gas combined cycle plants. These highly efficient power projects that burn natural gas to produce electricity was what was built when the industry went to competition,” said Thomas Frantz, director of the Electric Division of PUC.
A couple years later, relatively low-cost and efficient natural gas was becoming extremely popular. From 1999 to 2003, about 10,000 megawatts of new natural gas combined cycle plants came onto the regional market. They use natural gas extracted from shale rocks in the ground to create electricity.
Because of its popularity, other less efficient and more environmentally damaging sources like oil and coal started shutting down. Natural gas now accounts for about half of New Hampshire’s electricity.
But as demand for natural gas in New England has increased in the electric generation sector as well as the heating sector, the pipelines that carry the gas into New England from have become increasingly constrained.
There isn’t enough pipeline to deliver the gas, and prices have shot up. Natural gas is estimated to be about five times more expensive here than it is in areas of the country with unconstrained delivery systems.
The heating sector gets that natural gas first; what’s left over goes to electric generation. If there isn’t enough, electric generators switch over to more expensive and increasingly rare fuel sources.
“Suddenly there’s not enough available for all these electric generating units,” Scott said. “What that does is creates competition, so the price goes up.”
Last winter, a combination of a cold winter and natural gas shortages put electricity generators in a tricky situation. Wholesale energy for three winter months cost more than it did for the entire year in 2012.
Most consumers did not feel that increase last year because it wasn’t totally anticipated, and prices were already locked in, Scott said. But this year, risk-averse electric generators are not taking any chances, and the anticipated costs are reflected in the cost to the consumer.
Pipeline solution search
How to lower the burden for consumers isn’t a puzzle that can be easily solved, and any solutions will likely take years to come to fruition.
Scott is Gov. Maggie Hassan’s designee on an initiative created last fall by six New England governors, the New England States Committee on Electricity. NESCE is supposed to find ways to increase the natural gas capacity coming into the region.
Getting electric generators to invest in pipeline capacity has been a problem. There are too many constraints and not enough incentive to buy into the 10- to 20-year contracts pipeline developers require.
Right now, the longest electric generators have to bid into any market is three years. Pipelines require contracts of from 10 to 20 years. It doesn’t make sense to buy into a long-term contract when the companies are only assured revenue for three years, Scott said.
Another problem is it may not be an economically sensible decision for the companies to buy pipeline capacity. Last year, only about 28 days of the winter were really bad.
“Why would I enter into a 20-year contract, 365 days a year, when all the costs were incurred in 28 days?” Scott said.
In January, the governors made public their idea to create a tariff for ratepayers. The proceeds would go to paying for more pipeline capacity. Though it would mean extra cost, in the long run it would lower electric costs. That idea stalled out in August, due to disagreements amongst the governors and legislative blocks.
Another potential solution is investing in liquified natural gas storage facilities, but critics worry that instead of flowing that gas onto the regional grid, it would sell to foreign markets in Europe and Asia, where they can get make three to five times more money.
Concerns and other options
Recently, Northeast Utilities and Spectra announced a project to bring more than one billion cubic feet of gas pipeline to the region for $3 billion, the same amount of money that was lost last year due to pipeline constraints.
“We’re looking for ways to address that,” Scott said. “Having said that, that’s not very popular with everybody.”
If the electric generators have their reasons to resist more pipeline, so do environmental advocates who believe it’s too late to use natural gas as a “bridge fuel” between coal and oil and renewable energy sources like wind and solar.
“Natural gas is being promoted as the salvation of this country’s energy needs,” said Douglas Whitbeck, of 350 New Hampshire, an environmental advocacy group. “It has been touted as a bridge fuel, but the time for using a bridge fuel is gone.”
While natural gas is said to be cleaner to burn than oil and coal, critics worry that ripping up the countryside to build pipelines that can leak would be devastating to the environment.
“It’s extracting it and transporting it that’s the issue,” Whitbeck said. “Plus extraction of the material is an environmental disaster. The wells being used now don’t have an infinite life. Every time they re-frack, they don’t have the same benefit so they will have to keep fracking new wells.”
Whitbeck said part of the solution is towns and individuals taking their buildings off the grid and lessening demands by installing solar panels or heat pumps. A better place for the state to invest would be working on a distributed generating system for wind and solar energy, he said. According to the American Wind Energy Association, wind power is capable of meeting more than 60 percent of the state’s energy needs.
As seen in the October 30, 2014 issue of the Hippo.