Energy costs could keep climbing amid ongoing market volatility

Eversource crews work on poles and wires in Portsmouth. (Courtesy of Eversource)

A tanker full of liquefied natural gas heads to New England’s largest electricity generator. Then, it abruptly changes course, abandoning its North American contract for a higher bidder in Europe.

Scenarios like this are driving up energy costs across New England, experts warn. And that makes it nearly impossible to predict just how expensive electricity will become this winter.

“It all comes down to liquefied natural gas,” said Sam Evans-Brown, executive director of Clean Energy New Hampshire. The current market volatility, Evans-Brown said, is making electricity both expensive and hard to purchase.

And now, it’s time for two of the state’s utilities to do exactly that: go to market and purchase energy for a six-month period that starts in February. But energy experts are concerned that a routine process could go haywire given this market volatility.

Rates are already at all-time historic highs – and there’s no indication that the new rates will provide any relief to those already struggling with high energy costs. For example, when this process played out in Connecticut, rates went from 12 cents per kilowatt hour to 24 cents. In Western Massachusetts, rates went from 15.3 cents to 22 cents, while the eastern part of the state went from 17 to 25.5 cents. Right now, Eversource’s New Hampshire rates are already 22 cents, a rate that’s been in effect since August.

Eversource is scheduled to propose its new electric rates this week, with Liberty Utilities’ new rates coming next week, and energy experts are bracing for the impact this will have on ratepayers across the state.

“Eversource is afraid that they won’t get that many bids, or they won’t get reasonable bids, because the market is incredibly jittery,” Evans-Brown said. “We’re just sailing in totally unknown waters, with LNG prices that are this high.”

Liquefied natural gas is a hot commodity right now, given Russia’s invasion of Ukraine and the resulting energy issues in Europe, with countries willing to pay extremely high prices for it. The reverberations are felt the world over. New England is particularly susceptible because its largest electric generator, Mystic Generating Station in Everett, Mass., runs on the fossil fuel.

The region is used to natural gas prices ranging from $2 to $8 per million Btus, Evans-Brown said, but the world market has recently been as high as $65 to $100 per unit and ships like the one bringing liquefied gas to New England head to the highest bidder. That’s led Eversource to project that electricity prices will soar in January for large commercial customers, costing on average 10 times more than it would in a typical year, he said.

“It’s just insane, like that would be catastrophic if that forecast turned out to be true,” Evans-Brown said. And now market actors – including the energy providers that submit bids to Eversource – have to figure out how to set a price that accounts for potentially dramatic swings in cost. If they price it too low, they risk bankruptcy.

Weather also plays a big role in determining price, Evans-Brown said. The colder it is, the more Mystic has to run, and the higher prices will be. A more mild winter would result in lower prices – but the problem is that no one can exactly predict the winter weather.

What’s clear is that these high prices are already hurting those who have to foot the bill – including residents and businesses alike.

“It is going to be a very, very unpleasant, horrible, and agonizing winter for a lot of people in this state, and that is the train wreck that we are in the middle of experiencing as we speak,” said Consumer Advocate Don Kreis.

Energy costs have already led manufacturers to scale back production in the state, Taylor Caswell, commissioner of the Department of Business and Economic Affairs, told the governor’s budget director during state budget hearings last week.

Kreis said it’s possible the procurement process will go fine – or that the volatile energy market could pose problems. “There could be no adequate bids or no bids that cover the whole default energy service load, or the prices that come in via the bids could be outrageously high,” he said.

If that happens, Eversource would have to repeat the bid process, which could send a bad message to other potential bidders: The market is too risky right now. If a first round of bidding fails, that could make a second round even more perilous. And getting energy directly from the market is “very bad,” Kreis said, since it exposes ratepayers to massive swings in the price of energy.

Eversource itself indicated that it probably won’t have a lot of bids to choose from, in a Nov. 15 filing with the Public Utilities Commission.

“Based on the company’s recent experience in Connecticut and Massachusetts, there is a distinct possibility that the company will receive bids from only one to two bidders and that prices may be outside what has been historically considered to be an acceptable range and unrelated to market prices,” said James Shuckerow and Parker Littlehale in written testimony submitted to the commission. Shuckerow and Littlehale are company employees who are involved in buying energy.

The new rates will take effect in February, if they gain approval from the PUC. The regulated utilities have to go out to market now to purchase energy for those six months. They are supposed to present a rate before the commission by Dec. 8.

“The company may not receive sufficient bids at any price to meet the default service load requirements of New Hampshire electric customers,” said Jessica Chiavara, an Eversource attorney, in the November filing.

In that filing, the utility made two requests to address this concern: One, in the case it couldn’t buy six months worth of energy from a single bidder by Dec. 6, it wanted the option of buying it from the market in an ongoing manner. And two, it wanted the consumer advocate, the Department of Energy, and the PUC present at a confidential meeting when it would receive and review bids.

Kreis objected to that arrangement, which was rejected by the commission on Nov. 22.

Kreis believes that was the right decision because it’s the utilities’ responsibility to purchase power. “That’s why we give them the big bucks to make tough calls like that,” he said. “When the price goes through the roof, everyone’s going to blame Eversource, and they would like to share a little of that blame with the Office of the Consumer Advocate, the Department of Energy, and the Public Utilities Commission.”

And he pointed out that Eversource was able to buy enough power in both Connecticut and Massachusetts, suggesting that the situation may not be as dire as the utility claims. Plus, Kreis said, Liberty also has to go through the same process, and it did not raise concerns about receiving acceptable bids.

Eversource spokesperson William Hinkle said the company is “fully prepared to procure the energy supply that our customers need and rely on.”

“We remain concerned about the impact of the unprecedented volatility in the energy supply market on our customers,” he said, noting that the company will make efforts to mitigate impacts by helping connect customers with assistance programs, flexible payment plans, and budget billing.

by Amanda Gokee, New Hampshire Bulletin December 7, 2022

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Amanda Gokee reported on energy and environment for New Hampshire Bulletin. She also previously reported on these issues at VTDigger. Amanda grew up in Vermont and is a graduate of Harvard University. She received her master’s degree in liberal studies, with a concentration in creative writing, from Dartmouth College. Her work has also appeared in the LA Review of Books and the Valley News.