How Connecticut energy prices got so high — and what can be done about it
Connecticut’s first-ever Comprehensive Energy Strategy, released 10 years ago, was built around natural gas. Gas was cheap, plentiful and cleaner than oil or coal. It was touted as a bridge from those fuels to renewables for electric power, and better than oil for heating. The CES set out to convert hundreds of thousands of homes to gas heat.
But that strategy came with a big red flag, now all too familiar.
“The interstate pipeline system that supplies Connecticut’s natural gas is already constrained, and there is limited liquified natural gas (LNG) capacity in Connecticut. At current use rates, there will not be enough interstate pipeline, storage, or peaking capacity to serve a large-scale addition of new customers,” the CES said. “Underestimating and purchasing too little capacity could lead to reliability issues (i.e., a shortfall in supply during peak winter season).”
And that is precisely what happened. Ten years later we are facing another winter of price-spiking, hand-wringing and finger-pointing over the current shortfall.
Only this time it’s worse, thanks to a cutback in fuel production during the pandemic and Vladimir Putin’s invasion of Ukraine.
If there were any doubts, just look at what happened over the extremely cold Christmas weekend. During peak hours on Christmas eve, some power generators experienced outages. Expected imports of power — apparently from Canada — were unavailable. ISO-New England, which runs the regional grid, had to declare an energy alert and for a short time wholesale energy prices on the spot market hit more than $2,800. Prices above $100 are considered elevated.
At a nearly three-hour meeting Monday, officials from Connecticut, Massachusetts and New Hampshire, representatives from Eversource and about 160 others, began discussing the energy price crisis — which is region-wide — and looking for ways states can pool efforts to find solutions, especially when it comes to procuring energy.
But with different procedures and energy policies in each state, a common solution was not apparent. And, even if reached, still wouldn’t address the longstanding supply problem.
That larger crisis may not have been completely avoidable, but arguably it could have been tempered. And that’s even with the pressures of global energy markets in full geo-political spasm as they are now.
Melissa Birchard, until recently director of clean energy and grid transition at the regional environmental advocacy group Acadia Center, called it “groundhog day.”
“It’s a new version of the same old thing. But that being said, the new version on steroids. And that is because of Putin’s war as well as other geopolitical factors.”
Utility companies — Eversource and Avangrid — are not responsible for the price spikes. As electric distribution companies, their job is to get the power to homes and businesses. The cost of the actual power is collected by Eversource and Avangrid on behalf of the generator, which gets all the money.
But there’s still plenty of blame to go around for what’s happening now. In addition to the longstanding pipeline capacity problem, the structural configuration for how the New England grid procures power has kept it wedded to fossil fuels — especially natural gas — with a resulting reliance on the high-priced spot market when the weather gets cold.
There are other factors as well. Energy generators and utilities are resistant to change how they make money and lobby strenuously to keep the existing system in place, and it is difficult to build new transmission. Lawmakers, many of whom don’t understand the complicated world of energy, have been reluctant to spend money and therefore timid in their embrace of renewable energy and other infrastructure. And, finally, there has been a persistent focus on short-term energy rates, as opposed to investments in upgraded systems and renewables that may cost more upfront but will save money and improve reliability down the road.
Ironically, that focus on keeping rates low by limiting renewable power may be a big reason why Connecticut ratepayers are paying so much more now.
Katie Dykes, commissioner of the Department of Energy and Environmental Protection, said the pipeline constraint was noted as far back as 1998, when the state’s energy market was deregulated.
“I don’t think anyone really would have predicted the specific circumstances that we’ve been in over the last two-and-a-half years,” she said, citing the pandemic and Putin’s “weaponization” of natural gas, “but the vulnerability has been well known.”
And just as the vulnerability has been well-known, so have its potential solutions. Among them: a faster and more robust adoption of renewable and carbon emissions-free power; long-term contracts for LNG to better stabilize its price and availability in the winter until more major forms of those renewables are in place; a better diversity of power generator fuel sources; a less problematic process for transmission; and an overall modernization and reform of how the New England grid operates to accommodate state policies for addressing climate change and rapidly changing technologies.
“We aren’t 10 years behind — we’re at LEAST 10 years behind,” said Birchard, whose former employer was among the many environmental advocacy groups that blasted the original CES as over-reliant on natural gas. “So we have a lot of catching up to do with the climate in general and definitely with clean energy and transmission in New England. But we’re seeing a lot of will to change right now.”
How this happened
State Senator Norm Needleman, about to start his third term as co-chair of the Energy and Technology Committee, has had a front-row seat to the problem through his other job as first selectman of Essex.
Needleman said it was around 2015 when he was approached by the local gas company — owned by Avangrid — about extending its lines into Essex as part of the state’s gas expansion policy. The idea seemed OK to him. Then, about six months later, he said, the electric utility — Eversource — warned him there was a potential winter reliability problem that could include rolling blackouts, which had been exacerbated by the addition of new customers like the ones who converted to gas when Avangrid extended its delivery lines into Essex.
“I’m incredulous at this conversation,” he recalled. And then using more colorful language. “Who the #*#* made these terrible decisions to take a situation like this and make it worse?”
Rob Gramlich, an energy consultant at Grid Strategies, says New England had a lot of company around the country a decade ago when states saw the super-low natural gas rates.
“They myopically thought, ‘oh, well, that’s great. We can live on that forever, without taking risk into account,’” said Gramlich, who founded Grid Strategies and was also an adviser to former Federal Energy Regulatory Commission (FERC) chair Pat Wood. “Whatever we see in prices today don’t usually continue. So you really have to do resource planning with an eye toward risk mitigation and diversification of resources — even if it looks like it might be more expensive than investing all your resources in today’s cheapest source.”
Ken Gillingham, who specializes in environmental and energy economics at Yale and was the senior economist for energy and the environment at the White House Council of Economic Advisers during the Obama administration, says we have to point fingers at policy makers for not heeding the warnings.
“Absolutely. Absolutely. No question about it,” he said. “We were subsidizing people to get natural gas heating for quite some time. … Boy, that was a mistake if you ask me. That was someone who was not thinking carefully about what the implications of that would be.”
It’s not that natural gas is uniquely bad compared with other fossil fuels, all of which contribute to the greenhouse gas emissions that cause climate change and emit other sorts of pollution. It’s that the region has become overly dependent on it generally for electricity and in recent years for heat as people have converted from even dirtier oil.
That means not much diversity in fuel source. So if there are supply problems, New England, sitting as it does at the literal end of the pipeline, feels them acutely, often paying high prices or resorting to even more problematic forms of emergency electricity generation such as oil and coal.
During the late-December cold spell, more oil was in use than any other fuel for generating power — a rarity these days when oil generally isn’t used at all.
Winter amplifies the problem. Unlike summer, when the growth of rooftop solar has moderated the impact of increased air conditioning use as the seasons have become hotter, cold winters mean both the power for the electric grid and heating systems are competing for the gas and the limited pipeline space to transmit it.
Heat gets first dibs.
In past winters, liquified natural gas (LNG) shipped here from other countries has helped backfill the need for natural gas — but it costs a lot. It’s also meant that every January Connecticut’s electric rates, which are set by PURA several months prior, go up. And every July they go back down.
The winter scenario is happening again right now — but it’s far more pronounced because Putin has restricted Europe’s piped-in natural gas supplies as a tactic inthe Ukraine war, requiring the U.S. to use its natural gas supply to help Europe. That means less domestic gas for the U.S. — which is the world’s largest producer of natural gas, followed by Russia.
For the U.S. to get its gas to Europe, however, it needs to be liquified first and then shipped via tanker. But we only have seven plants capable of liquifying gas and they’re already at capacity.
As far as supplementing New England’s piped gas with LNG – that potential solution runs into a roadblock called the Jones Act.
It’s a 1920 law that requires shipments between U.S. ports be made by American-built and flagged ships. But the U.S. doesn’t have enough tankers to get the domestic supply transported to New England even if it was even available, which it’s not because of the plant capacity and European problems. Finally, once it’s in New England, there isn’t enough storage or pipeline capacity to handle it.
In October, Joe Nolan, president and CEO of Eversource, sent a letter to President Joe Biden asking for the suspension of the Jones Act to allow foreign vessels to bring additional U.S. supply to New England. He conceded in the letter that it’s not clear if the region would really have enough infrastructure for the additional supply.
“It’s just amazing to me that you’re in this region, Connecticut, Massachusetts, New Hampshire, we pay the highest price for natural gas, and 200 miles away at the Marcellus Shale you’ve got gas that’s the lowest price in the country,” Nolan said in an interview. “If additional pipeline was in the region, it would be a total game changer.”
That of course begs the question of why New England just didn’t build more pipelines, storage facilities or LNG terminals other than the existing one in Everett, Mass. which is likely to be on life support in about a year-and-a-half when the natural gas electricity Mystic, MA plant it supplies is slated to close.
Individual states have consistently rejected additional pipelines — including the widening of existing pipelines so they could accommodate greater flow, along with new gas-fired generation. Why? Lots of reasons — mostly related to climate change and state policies to scale back, not increase, the use of fossil fuels. Even Nolan admitted there would be no more pipelines.
“Pipelines are not going to be possible, and they won’t be possible ever,” he said.
Now throw this into the mix: In past years, ISO-New England has implemented a Winter Reliability Program, though it hasn’t in the last few winters and isn’t again this year, despite continuing to warn of problems. The ISO cited the high cost against diminishing benefits and seasonal predictions for a mild to moderate winter, which it said the existing resources could handle.
Also, one aspect of ISO-NE’s winter reliability plan in previous years — paying some of the region’s generators to keep extra fuel on hand — was thrown out by a court last year. The court basically said that certain generators, which included the highly polluting coal plants, already had the fuel on hand so there was no need to pay them extra.
The ISO has revamped its rolling 21-day energy forecast to better communicate potential problems. But there’s still plenty of concern out there. FERC even pulled together a New England Winter Gas-Electric Forum in Vermont last summer to discuss the winter situation.
Too much gas or not enough?
Experts come down on both sides of the gas argument, but generally agree that a transition to renewables is underway.
How that’s been managed so far is open to dispute.
“We’re in the intermediate transition period now, which is a tough period to be in,” Yale’s Gillingham said. “Renewable prices are cheap, and you’re going to see more renewables coming in for sure. But it still takes time to build them.”
“We are we are at a point in the middle where we can see the types of investments that we need to make,” she said. “We have the federal government now making it more affordable than ever and driving incentives to help facilitate those investments. And I’m more confident than ever that we can see a horizon where New England will be able to put this issue of winter reliability behind us. But the question is, how quickly can we get there?”
DEEP has come in for criticism that the ramp-up has been too timid and slow, especially compared with the massive renewable ramp-ups in Massachusetts and New York.
But most of the finger-pointing has been at failed transmission projects and at the grid structure itself, both of which arguably have slowed the growth of renewables that likely would have lessened the need for gas and oil, period.
Going all the way back to the first CES, Connecticut was never able to secure the transmission to bring onshore wind power down from Maine. More recently, efforts to bring hydropower down from Canada also failed. The Northern Pass transmission project through New Hampshire was rejected by that state’s siting council. Subsequent legal efforts to resurrect it also failed.
“That would have been a game changer,” said Nolan of Eversource, which was behind the project. “Firm power that was desperately needed to be injected into the New England grid.”
The newest effort — New England Clean Energy Connect (NECEC), which would go through Maine — is presently on hold, despite already being under construction, after a November 2021 referendum in that state rejected it by a huge margin. The opposition was spearheaded by fossil fuel interests. The question of whether the referendum was even legal goes to trial in April. This time it’s Avangrid, parent of Central Maine Power as well as United Illuminating here, facing the backlash.
The line could handle power equivalent to about half the amount the Millstone Nuclear Power Station generates – the largest single power generator in New England.
And Dykes continues her battle, now underway for several years, to reform how the ISO runs the grid to make it more renewables-friendly.
In the meantime, consumers pay.
“What the region should have done was something that would have stabilized energy supplies into the region on a long term basis. Instead, for the most part, the region remains short in the market,” said Gordon van Welie, president and CEO of ISO New England. “And now we’re living with those consequences.”
This winter, those consequences are proving to be very expensive.
Fixes – go short …
The general consensus is that New England’s winter energy problem must be tackled with a combination of short- and long-term solutions.
Long-term is the big slow stuff that make major progress toward achieving carbon-free power — offshore wind, hydro, expanded transmission and grid reform — all underway and all experiencing delays.
Short-term solutions seek to achieve two diametrically opposed outcomes — relying on more natural gas and less natural gas. The latter can be achieved through energy efficiency, such as transitioning to heat pumps and insulating homes so they’ll need less energy and investing in small renewables like rooftop solar, with or without storage, which can go up pretty quickly.
But increasing reliance on natural gas is essentially leaning into an energy source Connecticut wants to eliminate to help address climate change.
Dykes said the problem is what to do for the next three or four winters until offshore wind comes online, though she is concerned additional LNG could undermine the renewables market.
“Do we need an emergency reserve for the New England power grid, similar to what we have for the Strategic Petroleum Reserve? In this case, it would be beneficial to have a resource like LNG,” she said. “Available in limited quantities and with strict rules around how it’s used. Break glass; use in case of emergency. I think the ISO would certainly feel a lot more reassured if we had the resource like that available for these next few winters until we get our full complement of clean energy, resources and infrastructure in the ground.”
She would be right about the ISO.
Van Welie, the head of ISO, says it has two major levers: One is to go as fast as you can bringing on renewables — which does take time. “The other thing I think the region needs to do is do something about stabilizing the LNG supply into the region.”
He and others believe that means a contract to set the LNG price. “You either take the price season by season, which is going to be very volatile, or you negotiate and say ‘I want to fix the price for the next 10 years,’” he said.
That brings up a thorny question about New England’s only LNG terminal in Everett (there’s also one in New Brunswick, Canada). While the long-term goal may be to eliminate the need for imported LNG, the region is likely to continue to need it for several more years. But with its anchor power plant, the Mystic Generating Station, slated to close in 2024, can the terminal and its storage facilities stay open?
The ISO and utilities broached that in a problem statement in September. Dykes said she’d first need to know the financial mechanisms for keeping it open.
The ISO said that as electric vehicles come onto the market and other services switch to electric, the region will need more power. After years of being flat, power use recently started to tick up, which the ISO attributes to EV adoption.
While rooftop solar can help lower energy use, it still requires more complex and costly distribution systems.
Advocates are not dissuaded.
“Because this is an urgent situation now that we haven’t resolved in the past decade, we need all of the parties to come to the table. And we need the federal government, ISO New England and the New England states to work cooperatively to craft a set of solutions that can keep the lights on,” Birchard, formerly of Acadia Center said. “Those solutions have to start with clean energy.”
She singled out demand response, which alters the power need through systems such as control of thermostats, lighting, industrial processes and even the number of elevators that are operating in buildings.
“They don’t require the huge transmission lines. They don’t require the huge infrastructure and time processes that some other types of investments do,” Birchard said.
And there’s storage that allows for collection of excess power. Eversource fired up it first storage project a few months ago – 25 megawatts of battery capacity in Provincetown.
“We had three or four outages this summer,” Nolan said. “11,000 customers never knew we had an outage. It rolls right through it with that battery.”
The company is also working on a carbon-reducing geothermal pilot project to provide heating and cooling to a neighborhood in Framingham, Mass.
… And go long
Some of these shorter term energy fixes may wind up holding the fort awhile as the long-term transition to clean energy keeps getting longer.
In addition to the transmission issues around Canadian hydro, offshore wind is facing delays. First it was slow-walked by the Trump administration for four years, permitting delays – many spurred by fishing and fossil fuel interests. Supply-chain problems and recent inflationary pressures, which have put pressure on states to renegotiate contracts, are also contributing to the problem.
Another change that many see as necessary to getting more renewable power onto the grid is also delayed and now faces a potentially rocky road to approval. That’s the end of the minimum offer price rule — MOPR — which has been the guiding principle for how ISO-NE procures future power. Its effect has been to get more natural gas — at the expense of renewables — on the grid.
The MOPR is going away, though not until 2025, which is later than originally expected. There have been some creative ideas for replacing it that also increase renewables and decrease the potential for the situation we’re seeing now.
One — recommended by the ISO’s market monitor in June — is called a prompt seasonal capacity market. MOPR operates now with a forward capacity market and an auction that looks three years ahead.
“In other words, moving away from a forward capacity market, to just paying capacity revenues to resources that are actually on the system year-to-year,” van Welie said. It would embed the idea of having two capacity auctions a year — one for the problematic winter months and one for the rest of the year. Van Welie said the ISO would be investigating this idea during 2023.
“That makes a lot of sense because it turns out winter capacity and summer capacity are not fungible. So, technically, from an economics perspective, those should be distinguished as separate markets,” Gramlich said. “You shouldn’t be penalizing solar for its output in the winter. But you should be compensating it handsomely for its output in the summer.”
Other ideas include a separate forward clean energy market so renewables wouldn’t have to compete with non-renewable energy that might price them out. There are multiple concepts for how to structure that, including state-by-state or cooperatively through the ISO.
All of which brings up a concept that the ISO has floated for years to no avail — which is the idea of a price on carbon. Theoretically it would incentivize greater use of renewables. Van Welie said it could be accomplished by lowering the caps in the Regional Greenhouse Gas Initiative, which essentially forces power plants to pay for the right to pollute.
He said the ISO is waiting to hear from the states about how to proceed on that front, as well as on cost allocation for the transmission needed to integrate all the renewables that should be put onto the system.
“Once we’ve got agreement on how to pay for this, the next question will then be to the states. How do they want to administer the process of procuring that transmission? Do they want to do it or do they want us to do it?”
Until recently, getting the six states on the New England grid to work together rather than at cross purposes has been something close to an exercise in futility. Dykes’ relentless push to get rid of the MOPR and overhaul the wider grid construct has been a unifying force, though the results are still works in progress.
But the failure of Northern Pass and the uncertainty over NECEC stand as exhibits of how not to handle the process, if you ask Birchard.
“We need collaboration,” she said. “We need the states to work together so that you don’t end up with one state imposing impacts on another state. … we need communities to be consulted from the get-go.”
To that end, Acadia has devised an initiative it calls RESPECT – Reforming Energy System Planning for Equity and Climate Transformation. Instead of a top-down approach, it would set up a broad stakeholder process from the start to prevent the kind of after-the-fact problem NECEC is facing.
It aims to un-silo utility planning and look at the electricity and gas for heat sectors together, make environmental justice considerations priorities for the utilities, and eliminate what Acadia sees as an inherent conflict of interest utilities have in the whole process — principally that they have a financial stake in the outcomes of their planning decisions.
That might mean, for instance, they’d be less inclined to want battery storage projects because it would generate less income than the wires, poles and other distribution infrastructure they have relied on for more than a century.
Acadia is suggesting that states should create a neutral, independent planning entity that will incorporate the views of a larger and broader range of stakeholders and make the process more transparent and accessible.
The idea is gaining some traction in Maine and is likely to come up in Massachusetts. In Connecticut, Public Utilities Regulatory Authority Chair Marissa Gillett is also interested. “One of my observations to begin was the lack of coordination between the electric and gas utilities,” she said. “This has to be a dual planning effort.”
“The best way to overcome local opposition to any infrastructure is to have a pretty strong regional consensus that it’s needed and different alternatives have been evaluated and compared,” Gramlich said. “No option will have zero impact.”
Transmission, replacing the MOPR and other changes that require federal approval may be in for yet another detour, if not a roadblock.
U.S. Sen Joe Manchin of West Virginia, who chairs the Energy Committee, in 2022 refused to hold a hearing on Biden’s renomination of FERC Chairman Richard Glick, whose term expired at the end of the year.
Glick had been a champion of the major reforms that could help New England out of its winter energy shortages and price spikes. He also was no fan of the pipeline expansions Manchin supports. FERC now has only four members, two Democrats and two Republicans, increasing the risk of deadlocks on action.
While some in the region worry about a slowdown of the actions New England needs FERC to take, no one thinks it will derail the clean energy transition.
In the meantime, the pressure to fix the problem will continue, said Senator Needleman, calling himself “a strike-while-the-iron-is-hot person.”
“I believe that this particular circumstance has pointed out weaknesses in our systems a lot of ways. And we need to do something about that while we can.”
But he still focuses heavily on cost-benefit, even though that kind of focus may have propelled part of the crisis. When asked if he’s in favor of a long-term LNG contract to stabilize the price he said: “Am I? Yeah, yes, of course I am. But again, what’s the cost benefit here?
“This moment is unique. And it gives us some more opportunity to look at that. But I’m going to always be the guy who advocates for some level of prudence here and be mindful of all the aspects to reliability. The costs. Climate change mitigation. Risk. This is a new level of risk.”