The reasons why power has long been costly here
Local residents and businesses are worried, confused and perhaps angry about higher electricity prices that are bearing down on our region. After all, abundant shale gas on our doorstep in Pennsylvania has made natural gas cheaper than ever. Yet our state - with some of the highest electricity prices in the country-is facing a wave of price increases that will take effect in the next two months. Here are answers to common questions.
Why are Connecticut's electricity prices among the highest in the country?
It's been this way for decades. First, we're resource poor. We lack local gas, coal and oil supplies, so these common fuels for power plants must be transported here, which makes them more expensive than in other regions. We also lack wind and hydro resources. Even solar power is weaker here than other parts of the country. Second, our electric rates include costs to pay for our very strong social safety net that prevents low income or seriously ill customers from shut-offs during the winter and provides generous shut off protections during other times of the year. Finally, we have some of the toughest environmental rules in the country, which drives up the cost of producing power.
But why another wave of price increases now?
High natural gas prices. Gas is the most common fuel source for producing electricity in New England. The grid that powers New England is run like a wholesale electric market - purchasing power by turning power plants on and off as needed to meet customers' needs. Nuclear plants, with very low fuel costs, are turned on first. As more electricity is needed, power plants are turned on in order of efficiency - cheapest power first. During most times of the year, gas provides the cheapest power available. However, during winter cold snaps, gas becomes scarce, and therefore expensive. At all times, the federal wholesale electric market system pays all plants that are producing power the same price paid to the last plant that was turned on. Because most of our power plants are fueled with gas, the price of gas sets the wholesale electric price for all New England power plants.
What about Pennsylvania shale gas? Isn't that plentiful and therefore inexpensive?
Yes and no. While Pennsylvania's Marcellus shale contains huge volumes of natural gas just a couple of hundred miles away, moving that gas to New England power plants is very expensive.
Why can't power plants access cheap gas in the winter?
During very cold weather, the interstate gas pipelines that move gas from Pennsylvania to New England are not large enough to supply all of the customers who use gas for heating and supply the power plants at the same time. The heating customers pay a steep fee to reserve pipeline space during the coldest weather. The power plants do not.
They can't afford to because the federal wholesale electric market rules do not provide a mechanism for power plants to recover the substantial costs of buying guaranteed space on the pipeline during the 10 or 20 coldest days of the year. Instead, the power plants wait for temperatures to warm up a bit, which frees up space on the pipeline that they use at a much lower price.
Are these cost increases related to Hurricane Irene, Sandy, and the other storms?
That's an entirely separate topic. The rates for distributing that power locally (via poles and wires) are set by state regulators. These rates reflect the costs of making the local system better able to withstand storms outages, the extraordinary costs of storm cleanup and power restoration and the costs of the social safety net. For CL&P, state utility regulators will decide by year's end whether those distribution rates will increase and, if so, by how much.
Paul McCary is an attorney with Murtha Cullina LLP. He teaches a course in Energy Regulation and Policy at the University of Connecticut Law School.
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