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New England needs a natural gas capacity market – Hartford Courant

This winter, New England may not have enough affordable natural gas to meet our power generation needs. Eversource and United Illuminating – Connecticut’s regulated electric utilities – will need to nearly double their utility rates for the first half of 2023. Our utility regulator, the Public Utilities Regulatory Authority (PURA), can do little to change this reality. Given the amount taxpayers are set to pay out this winter, you’d think the crisis would end there. It gets worse. ISO New England, our regional grid operator and manager of the wholesale electricity market, is warning of power outages on exceptionally cold winter days. Dirty and expensive coal and oil-fired peak power plants that are idle for most of the year are disposed of. But they won’t be enough to power loads when natural gas supplies run dry. No Demand Response can fix this. The cost to our economy, health and safety is immeasurable.

This energy crisis didn’t start yesterday — that’s why your utility bills go up every winter. New England’s finite natural gas pipelines were built decades ago to service homes and businesses, not dozens of giant gas turbines installed during the recent shale boom. Sky-high spot prices for gas and LNG should attract pipeline development. However, recent efforts have failed. Though New England is a stone’s throw east of the gas-rich Marcellus Shale, New York blocked several interstate pipeline proposals, citing the Clean Water Act. But even as projects like Kinder Morgan’s billion-dollar Northeast Energy Direct made headway, plans fell through because it couldn’t find enough customers when the need was overwhelming.

These failures reveal a lack of coordination between New England’s bifurcated electric and gas industries. In short, gas utilities don’t build capacity without long-term customer loyalty. These regulatory battles have to be worth the fight. The vital Algonquin and Iroquois pipelines, for example, were built during the construction boom of the 1950s and 1990s because they created new residential and commercial gas demand for decades. But due to the seasonal, competitive nature of New England’s deregulated wholesale electricity markets and power procurement policies, most gas-fired generators cannot secure fixed contracts. While homes and businesses needn’t worry about the cold, power producers are scouring the spot and day-ahead gas markets for leftovers, exposing power prices to global volatility and speculation.

The Federal Energy Regulatory Commission should establish a natural gas capacity market to address New England’s winter shortages. Every year, providers were able to offer their unreserved winter capacities in an auction. The generators then purchase gas and LNG capacity equal to the megawatts of electricity each is committed to supply (if required). This figure is set by ISO New England’s long-term capacity market for electricity, which was set up with analogous targets. Over time, the capacity payments would encourage gas utilities and transmission owners to invest in their systems. During the winter season, short-term adjustments would allow producers to trade gas contracts with each other and local gas traders sharing the grid, reflecting short-term load forecasts. By linking generation demand to gas availability, gas suppliers and prospective pipeline contractors can lock customers, allowing more power plants to procure abundant resources. This agreement protects both generators and suppliers from risk, tames electricity prices and directs capital into efficient, low-heat-rate plants.

Why don’t we just thrash the Jones Act and increase our reliance on LNG well into the future? Gas is a global commodity. There is nothing to prevent suppliers from selling their fuel in other markets such as Europe, where spot prices dwarf ours – increasing our willingness to pay. LNG is an unstable long-term option.

Connecticut’s big-name utilities don’t raise utility prices out of greed. There’s no incentive because they don’t own the assets that generate that electricity. Rather, they source the majority of their customers’ electricity through ISO New England’s markets and pass the cost on to you at no profit. But the ISO doesn’t control the natural gas supplies, the infrastructure that transmits them, or the clearing prices that operate the grid. When utilities are paid to maintain the grid, the ISO is instructed to balance the grid, and power plants are paid to run when needed, no one secures the resource that drives the system over the long term.

Solar, wind, hydro and fuel cells will become dramatically more competitive over time to meet base load. However, gas generators provide the necessary frequency balancing capabilities that will offset the disruptions in renewable energy and provide a solid foundation on which to grow. Without greater, market-based coordination between the electric and gas industries in New England, we will face rising prices, blackouts, and a dirtier grid for a long time to come.

Liam Enea is a student at the University of Connecticut.