Current thinking about electricity prices
On Nov. 23 The Day published Paul McCary's guest commentary about the reasons behind the high cost of electricity in Connecticut. In today's commentary, he discusses ways to try to control those costs.
The recent wave of electricity price increases in Connecticut is straining household budgets and hurting our business climate. The primary cause of most of these price increases is our region's over-reliance on power plants fueled by natural gas, combined with a lack of interstate gas pipeline capacity into New England. How can we meet these challenges?
There are no quick fixes. Trade-offs among price, environmental impacts and reliability are often required. What's more, long-term solutions all carry the risk that, by the time the solution is implemented, changing fuel markets and other circumstances will render the solution ineffective. That said, here is a list of partial solutions that could provide some relief.
First, encourage power plants to burn oil during very cold weather. Nearly all large gas power plants can be modified to operate using oil in addition to gas. Over the past decade, environmental concerns about air emissions from oil burning and the absence of financial incentives in the federal wholesale electric market caused most of these plants to ignore oil. Plant operators quickly learned that maintaining oil inventories and related permits did not bring enough extra money to offset the extra costs. Many plants removed oil tanks or let them sit empty. Others never outfitted the plants with the extra equipment needed to burn oil.
Recent changes to federal electric market rules now cover some oil storage and equipment costs, but more can be done. Federal wholesale market regulators should further revise the market rules to make limited oil burning financially attractive to plant owners. The plants would burn oil - in compliance with applicable emission rules - only during the 10 or 20 coldest days of the year, when interstate gas lines are fully occupied delivering gas to heating customers. The extra emissions from burning oil on those days might be an acceptable trade-off for significant price relief.
Second, diversify our power plants beyond natural gas. Building a new nuclear plant anywhere in New England would be very challenging, but adding more biomass (wood) plants could help hold wholesale prices down during cold winter weather. It might even make sense to retain some coal plants. Small hydro, wind and solar resources can also play a role, but these renewable resources alone cannot solve our price problem. They produce power only when the river flows, the wind blows or the sun shines. They are not likely to supply much power during cold, still January evenings.
State and federal regulators and policymakers often speak about the importance of fuel diversity, but there are no price incentives that actually pay for fuel diversity. There should be. Eastern Connecticut has recently lost two non-gas power plants, a biomass plant in Sterling and the AES Thames coal plant in Montville. Neither plant could earn enough money in the federal wholesale markets to keep operating. Yet these plants could provide price relief to consumers during cold weather when gas cannot be delivered to power plants and prices rise.
Gov. Dannel P. Malloy and other New England officials have suggested two solutions. Both involve expensive infrastructure additions that are being actively opposed by neighbors. The first is importing large amounts of hydro power from Quebec. That could help if we could assure ourselves that Canadian hydro would be available during critical winter periods (and not used to meet Canadian winter electricity needs) and that the costs of the new electric transmission lines needed to import the power do not erode the hoped-for benefits.
The New England Governors support building new gas transmission lines into New England. Figuring out who will pay for these lines has proved challenging. Federal electric market rules do not encourage power plants to pay these costs. Without bearing these costs, the plants cannot expect to be able to use the lines during the coldest weather, when tight gas supplies send power prices up.
In the long run, a diverse fleet of power plants is probably our best hedge against spiking prices.
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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