January 23, 2013

New England power prices drop 23 percent

ISO New England said Wednesday that electricity prices are now at their lowest levels since 2003.

The Associated Press

BOSTON — New England's power grid operator says wholesale electricity prices dropped by nearly 23 percent regionally last year thanks to falling natural gas prices and decreased demand.

In this Sepember 2003 file photo, the setting sun silhouettes electric transmission lines. New England's power grid operator says wholesale electricity prices dropped by nearly 23 percent regionally last year thanks to falling natural gas prices and decreased demand. (AP Photo/Mark Duncan, File)

ISO New England said Wednesday that electricity prices are now at their lowest levels since 2003.

The lower wholesale prices don't necessarily mean quick drops in monthly power bills. Utility regulators in the six New England states set retail rates in advance, and because the rates are in place for intervals of months or years, the lags between drops in wholesale and retail prices can vary.

But since the ISO expects the trend of low recent natural gas prices to continue, the savings should be coming.

"With that trend line continuing, consumers will definitely see the benefit," said the ISO's chief operating officer, Vamsi Chadalavada.

The ISO says wholesale power prices dropped from $46.23 per megawatt hour in 2011 to $36.09 last year. That means buyers paid $1.5 billion less for electricity in 2012 — from $6.7 billion in 2011 to about $5.2 billion last year.

The driver in the falling wholesale rates is a 20 percent decrease in the price of natural gas, New England's dominant fuel for electricity production. The ISO said the region is benefiting from stepped up production from the nearby Marcellus Shale field in New York and Pennsylvania.

But lower electricity demand — due in part to the economic downturn, milder weather and better energy efficiency — also has pulled down prices, according the ISO.

The decrease in electricity demand was tiny, with the ISO saying it's fallen in New England by just 0.9 percent, or 0.6 percent if adjusted for weather. But Chadalavada said even minor decreases matter because it can mean that more expensive power generators (oil-burning plants, for example) no longer have to be used to keep the lights on.

The news about the year-to-year drop in electricity prices comes amid several weeks of high natural gas prices in New England.

A Jan. 18 analysis by the U.S. Energy Information Administration said that since November, New England has had the nation's highest average natural gas prices in the spot market and warned that could mean volatile energy prices this winter.

The report blamed supply constraints, including a natural gas pipeline system that's been flowing at near capacity from the west or south.

Chadalavada said higher natural gas prices in winter, especially during cold snaps, are expected, and the average price is expected to fall over the year during seasonal drops in demand.

But he said the situation highlights the ISO's persistent concerns whether the regional grid will always be able to deliver enough power on the days when demand is highest. Because New England relies so heavily on natural gas for both electricity and heat, winter weather can increase demand toward the limits of what existing pipelines can deliver.

"Our dependency on natural gas is going to continue to increase," Chadalavada said. "Is there going to be adequate supply of natural gas in New England at all times, such that the reliability of the grid is not compromised? We're really working at a very rapid and urgent pace to try and resolve that concern."

Paths the ISO is exploring include more pipeline capacity or increasing regional storage of liquid natural gas.

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