New Englanders: Expect Higher Electric Bills Due to Capacity Costs

For New England customers, the warning is all too familiar by now: Get ready for your electric bills to go up. 

Rising costs have been an issue in New England for the past decade as the region becomes increasingly dependent on natural gas to supply power and when demand spikes, particularly when severe weather hits.

This time, there’s another factor expected to push up prices: the closing of New England’s largest coal-fired power plant. 

Why Is This Happening?

Energy Capital Partners, the private equity firm that owned Brayton Point Power Station, has permanently closed the aging generator in May 2017. Located in the southeastern Massachusetts town of Somerset, the Brayton Point Power Station has been producing 1,530 megawatts of electricity since 1963, according to The Boston Globe.

The decision was primarily an economic one—it’s becoming more difficult for aging coal-fired plants to compete in a market that increasingly relies on natural gas. The use of coal to generate electricity has declined by a quarter over the past decade while the use of natural gas doubled over the same period, according to the U.S. Energy Information Administration.

Concerns about compliance with environmental regulations have also factored into the decision to close the plant and others across the country. In response to the Mercury and Air Toxics Standards , the EIA reports plant operators across the country have retired or plan to retire 12.8 gigawatts of coal-fired generation this year alone, in addition to 4.1 gigawatts retired last year.

In New England, more than 25 percent of current capacity (almost 8,300 megawatts) will be retired by 2020, according to ISO New England. That’s enough to power as many as 8 million homes.

What Is The Impact?

The independent operator of the power grid, the ISO New England, had asked the owners of Brayton Point to keep the plant running longer to ensure a reliable supply of electricity for the grid, but the owners declined. Therefore, ISO New England will pay higher capacity costs to procure enough power from other sources to meet demand. This will directly impact the rates commercial and residential electric customers pay beginning this billing month (June 2017). ISO New England secures its capacity three years in advance through an auction that rates at which generators will be compensated for supplying electricity.

Capacity prices in  New England will increase almost 2.5 times from the June16 – May17 power year to the June17- May18 period. These rising capacity rates have been officially published by the ISO New England, so all power suppliers and load serving entities will be charged these rates.. Customers with capacity passed-through on their current contracts will see the rise in prices directly on their bill but the rise in rates does not necessarily mean an increase in the capacity cost line item. Overall capacity costs are a function of these published ISO New England capacity prices and the account’s capacity tag.  The capacity tag in New England is set during the previous power year on a single hour when the overall demand for the region hits the annual high. Once that hour is determined, each account’s capacity tag is set based on that hour’s consumption. For accounts with a constant cap tag from power year to power year, the rise in capacity prices will equate to a rise in capacity costs but if a decrease in a cap tag could potentially offset the price increase.

How Can Customers Offset Rising Capacity Costs?

Constellation provides a number of capacity tag management programs, including the popular Peak Load Management program, to mitigate high capacity rates and lower the overall costs of energy. Through the Peak Load Management program, Constellation’s load response team monitors grid consumption and weather to predict the peak setting hours of the year. The team alerts customers with email notifications on the day before and the day of the predicted peak hours. When peak days and hours arrive, businesses can voluntarily curtail their energy use.

This program is available to both fixed price and index customers. Customers with a fixed price contract still enjoy greater budget certainty and gain the potential for their capacity or transmission costs (or both) to go down. Customers buying power through index pricing may realize additional savings, as peak load hours generally coincide with some of the highest energy price hours of the year.

To learn more about how Peak Load Management can help your business offset rising capacity costs and achieve your energy management goals, contact us today.