Better budget more for your summer energy costs.
This summer’s wholesale electricity prices will rise 22 percent in New England over last summer, according to a May report from the Federal Energy Regulatory Commission. And that figure likely will be even higher in Connecticut.
The Summer 2011 Energy Market and Reliability Assessment says the price per megawatt hour will rise to $60.62 from $49.78 in the summer of 2010.
“That’s pretty substantial,” said Eric Brown, associate counsel for the Connecticut Business & Industry Association. “That is disturbing to say the least.”
The FERC summer assessment isn’t meant to be an exact predictor of the retail electricity prices in New England, rather a look at the trends affecting summer prices. Trends in wholesale prices take longer to affect the retail prices paid by consumers, especially those in long-term contracts.
Any business owners who haven’t switched to a competitive electricity supplier should do so now, Brown said. Contracts that protect from short-term price spikes would be best.
FERC’s assessment for New England summertime pricing is particularly bad for Connecticut ratepayers because the state’s rates are typically 10-20 percent higher than the regional average.
The region’s electricity consumption is highest in the summer. Coupled with higher-than-usual prices, summer 2011 will be even more expensive for energy costs.
This summer price estimate is a particularly significant as the last two years held relatively steady at $48.77 per megawatt hour in 2009 and $49.78 per megawatt hour in 2010.
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Prices will spike this year because the cost of natural gas increased 17 percent, and natural gas drives the cost of electricity in New England, according to the FERC report. Other factors that can drive up the cost of electricity — such as transmission, generation availability and demand — won’t be factors this summer, FERC said in the assessment.
“New England is one region that depends heavily on gas for power generation,” said Craig Cano, FERC spokesman.
Although the majority of electricity in New England isn’t generated with natural gas, every power generator is paid the same price as the highest cost generator operating at any given time. More often than not, that is a natural gas plant.
FERC’s observation of natural gas prices playing a direct role in electricity price has been documented locally as well.
In summer 2008, when natural gas prices were at historic highs, the average locational marginal price of electricity — a metric which has a closer tie to prices actually paid by ratepayers — was $95.58 per megawatt hour, according to regional grid administrator ISO New England.
In summer 2009, when natural gas prices were at historic lows, the average locational marginal price was $35.48 per megawatt hour. Last summer, natural gas prices rose, so the locational marginal price went to $55.42.
Summer 2010 also had higher than average demand for electricity, which caused prices to rise, said Marcia Blomberg, spokeswoman for ISO New England.
Because demand is so high in the summer, the season is prone to immediate spikes in prices. When demand increases, the power grid relies on peaker plants to generate the extra needed power. These peaker plants only operate when demand is high, and they tend to be high-cost, less efficient and less environmentally friendly than the base load plants that operate all the time.
The high electricity prices in New England put Connecticut at a severe disadvantage economically, Brown said. Connecticut has the second highest electricity prices in the country, behind Hawaii.
One solution for business and residential ratepayers is competitive electricity suppliers. These suppliers offer different rates than the default rates offered through the utilities, and the competitive rates tend to be cheaper. Ratepayers can also sign contracts that keep the electricity rate fixed.
Connecticut Light & Power has had 38 percent of its residential customers sign up for a competitive supplier; 56 percent of its small business customers; and 84 percent of its large business customers. United Illuminating has had 43 percent of its residential customers sign up for a competitive supplier; 54 percent of its small business customers; and 91 percent of its large business customers.
“Many of them would be shielded from these price spikes,” Brown said.
