FALMOUTH, Maine — Electricity prices for medium-sized customers such as small businesses and schools will spike sharply this winter, which state officials say has left some to consider energy efficiency investments, scaling back operations or shifting production to off-peak times to weather the increase.
Those customers can expect an average increase of $1,100 on their electric bills for the period covering from September to January, if they continue to operate as normal.
State officials are warning customers about the prices they face this winter as they also determine whether the region’s electricity market will correct the problem itself or if the state needs to step in to help expand natural gas capacity in the region.
The state’s public advocate cautioned Thursday that planned pipeline expansions in New England are still years away, leaving regulators and power customers with complicated short-term challenges.
“There’s not a lot of short-term relief,” said Tim Schneider, public advocate at the Maine Public Utilities Commission, during a forum with federal, state and pipeline company officials on Thursday morning.
In January, the standard offer price for medium-sized customers in Maine will jump about 33 percent from one year ago. That price affects close to half of medium-sized customers in the state, including many smaller employers.
Schneider and Patrick Woodcock, director of the Governor’s Energy Office, said prices in other New England states are already demonstrating some of those increases. The six New England states all draw from the same electric grid, operated by ISO-New England.
Increases are likely ahead for residential customers getting the standard offer price as well. At the end of 2013, that was about 73 percent of residential customers.
Prices for that group of customers are set each March. Because they are based on a three-year average of bids received from power suppliers, they fluctuate less than for other customers, but the upcoming bids will undoubtedly drive up the price.
The competitive electricity market is one indicator of that, where prices for residential customers signing six-month or yearlong power agreements are between 10 cents to 12.5 cents per kilowatt hour. The standard offer price for Emera Maine and Central Maine Power customers is about $7.6 cents per kilowatt hour.
The constraints also are affecting industrial natural gas customers, who are expected to see prices for the fuel jump by more than 60 percent in the next year, according to an analysis by consultants at Competitive Energy Services. While prices are rising throughout New England, that analysis shows Maine’s unit price for natural gas is about two-thirds higher than New Hampshire and 10 times the price in New York, which is closer to the country’s most massive deposits of gas-producing shale.
Officials from ISO have raised concerns about just how the region will handle natural gas capacity limits for the regional power grid where natural gas-fired power plants generated about half of the region’s power in 2013. That’s compared with 2000, when natural gas made up 15 percent of the region’s power generation.
Anne George, a spokeswoman for ISO, said during a presentation Thursday that natural gas capacity has not kept up with the addition of gas-fired power generation, leaving situations such as last winter when, amid a cold snap on the evening of Jan. 28, natural gas power plants operated at about 27 percent of capacity because of constraints on gas supply.
The reason that supply is constrained at times of extreme cold is because heating demand gets first dibs on any natural gas pipeline capacity. What’s left goes to power generation and, in the winter, that’s a smaller percentage, which led the price of gas to double in each of the past two winters.
Schneider said Thursday that the price spikes are a sign of failure for the region’s deregulated power market, where generators submit bids each day to fill the next day’s power demand. In that system, the bid that satisfies the last bit of demand sets the price of all wholesale power for the next day. That means the price of natural gas-generated power often sets the region’s wholesale power prices because it generates a majority of the region’s power.
While that situation drew regional attention earlier in the year, through the New England States Committee on Electricity, Maine is the only state considering action to help support new pipeline capacity.
In order to build new pipelines, federal regulators require that pipeline builders secure commitments from local distribution companies such as Unitil or Bangor Gas. Maine is considering committing to new capacity as well, but many questions remain, and a staff report issued one week ago suggested that Maine’s commitment to up to $1.5 billion over 20 years would likely not return a commensurate drop in electricity rates to justify the expense.
That report has left three pipeline companies — the Portland Natural Gas Transmission System, Kinder Morgan and Spectra Energy — with the task of convincing state regulators that their respective projects can provide a compelling case for gaining investment from the state.
Each proposal is different in many ways, from total proposed capacity to method of construction to timeframe.
Each of the companies has said it is courting private-sector commitments from local distribution companies and moving forward without knowing whether the state will commit to capacity investments.
One expansion project on Spectra’s Algonquin line is already with federal regulators and is slated to start operation in 2016, but that expansion comes as other power plants are expected to go offline, increasing the overall natural gas demand and still leaving the region shorthanded.
The ability of pipeline expansions to meet that projected demand will be a part of the PUC’s proceedings, a case that will generate arguments from advocates who project that the region’s competitive energy market will correct the problem itself as well as from those who assert that state government needs to enter.
“It places a premium on understanding what the future is going to look like, and that’s not a question that’s easy before the PUC and before New England policymakers,” said Jim Cohen, an attorney speaking Thursday and representing Spectra in the PUC case.
Woodcock said Thursday he doesn’t see any way to put a dent in power prices without getting some form of state support, from Maine or from a region-wide tariff on power prices.
“We have very good presentations from very good companies, but their takeaway is that the problem will be solved with one of these projects or a combination of these projects. That is not going to happen,” said Woodcock. “When they say [a pipeline] can go up to 1 [billion cubic feet of gas per day], there is no mechanism to get these pipelines to that capacity without some type of intervention. I want to make that abundantly clear.”
Parties including each pipeline company have until Oct 15 to file responses to the PUC staff report, giving the commission’s three members more to consider before they make a decision on whether and how much ratepayers should support pipeline expansions.