Mint Happenings – Q2 2015

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Mint Happenings – Q2 2015

Mint Energy 2015 Highlights

ISO New England News
Prices lowest in decade
Prices will continue to rise
Renewables raise capacity prices
NH pipeline push

PJM News
PJM expects changes
Natural gas exceeds coal
Overhaul to capacity market
Regulatory Corner
Termination of controversial rule
RI tax changes

Regulatory Corner
Termination of controversial rule
RI tax changes

ISO New England News

Power Prices In New England Drop to 4th Lowest Over a Decade

According to ISO-New England, the average price for wholesale power in May dropped to the fourth-lowest monthly price in 12 years.

The wholesale power prices benefitted from the lowest monthly price since 2003 for natural gas – which generates more than half of New England electricity – that more than offset the warm weather for the month, which increased demand particularly for air conditioners.

Wholesale power prices are just one component of an end use customer’s electricity rate. Other factors include, but are not limited to, capacity, renewable portfolio standards, line losses, transmission, distribution, taxes, third party intermediary fees, ISO-related fees, and supplier service fees and government fees, to name a few.
(Source: “N. England Power Prices Drop To 4th Lowest In 12 Years.” Hartford Business. New England Business Media. June 30, 2015. Web.)

Electricity Prices in New England Will Continue to Rise

ISO-New England held the ninth Forward Capacity Market in February in order to plan for upcoming power demand and generation. Results of the FCA 9 auction showed that issues with the regional capacity and energy markets may continue the upward pricing trend in future years, affecting the period from June 1, 2018, through May 31, 2019.
Last year’s auction showed a capacity price increase in many auction zones in New England, but insufficient supply forecasted for Rhode Island and Southeastern Massachusetts zones cancelled traditional bidding and higher “administrative pricing” for new and existing resources in the area.
Past auctions have determined that rates have been steadily rising since 2010 and larger increases have been recorded in most recent years. While the rates mainly impacted electricity generators, increases in the past have affected both retailers and the end use customers.

Many generators have retired in order to phase out traditional generation assets for a cleaner resource, which has had an impact. Lacey Girard, a media relations representative from ISO-New England stated “The floor price went away and, at the same time, a lot of generators told us they were retiring. The region quickly went from having excess capacity to having tight supply.” Even though a boom in natural gas took a large part in closing generators, many companies have increased their efforts in providing the fuel.
With that all being said, recent price spikes experienced by consumers were a reflection of the energy market, not from the capacity market. Price spikes occurred during extreme cold periods during last winter due to natural gas pipeline constraints coming into New England.
Generators in the region have put effort into keeping up with capacity expectations. “The higher prices have drawn new capacity to the region,” Girard said of the possibility. “If there’s a lot of excess capacity, prices may tend to be mitigated.”
Until a final solution is put into place, prices are predicted to rise to the highest level seen in years. At the last auction, the price for new resources coming into the Rhode Island zone for the 2018-19 period was set at 17.7 cents per kilowatt-hour. This price is the highest price since ISO’s forward capacity actions, almost double what the rest of New England generators will be paying.
(Source: Thompson, Ben. “Region’s Electricity Prices Expected To Keep Rising.” Taunton Gazette. Gatehouse Media, Inc., Jul. 4, 2015. Web.)

Renewables Are, In Part, to Blame for Rising Capacity Prices

As federal and state policies attempt to cut carbon emissions there has been a rise in the generation of renewables. According to the Independent System Operator, New England has a modest amount of wind and solar energy sources, including more than 4,000MW of proposed wind capacity. The grid expects market penetration to rise anticipating 2,500MW of solar generation by 2024.

The shift in revenue puts more financial pressure on energy-market dependent resources. Although the rise of renewable generation is keeping prices down in electricity markets, to offset the loss in revenue in electricity markets, generation sources are forced to price their capacity higher. This in turn drives up prices in capacity markets, hence driving retail electricity prices up.

The expected growth could cause more nuclear and coal plants to retire, and also deplete energy revenues that sustain power production plants that generate the power needed to satisfy minimum demand in the region. Federal tax credits and state subsidies allow renewable generators to offer their energy at low prices and still earn a profit. For that reason, additional renewables would reduce energy prices in the region. However, as we know, energy is only one component of the customer’s electricity rate. Although energy prices may decline, the demand of electricity on fewer generation resources will raise capacity prices, hence raising retail electricity rates.

“The shift in revenues from the energy to the capacity market will also affect the resource mix, putting additional financial pressure on energy market dependent resources, “the ISO stated.

As wind and solar generation become more prevalent in the region, “the price-reducing effects of renewables on electric energy prices will increase,” according to the report. “This will in turn increase the financial pressure on energy-market dependent resources, often baseload resources such as nuclear and coal.”

(Source: Walton, Robert. “ISO-NE: Renewables Are Driving Up Capacity Market Prices.” UtilityDive. Industry Dive, June 9, 2015. Web.)

Should New Hampshire Go At It Alone?

Recently, Tennessee Gas Pipeline Co. has made a push at New Hampshire to secure natural gas pipeline capacity by contracting for a pipeline that would be made available to gas-fired generator, even if other New England States are not ready or unwilling to so do so themselves.

Due to lack of capacity, electric generators have an insufficient supply of natural gas, which results in spiking natural gas prices. TGP’s Northeast Energy Direct project aims to alleviate high natural gas and power prices in New England.

During the winters of 2013-2014 and 2014-2015, New Englanders paid approximately an additional $7 billion in electricity costs, according to ISO-New England. Kinder Morgan believes that whether or not other New England states go along, New Hampshire should sign up for NED capacity, even if it means their neighbors get a benefit on the project at no cost. In arguing for its project, TGP said that “if New Hampshire acts unilaterally, other New England states that do not contract for additional pipeline capacity will also receive the benefit of lower natural gas and electric costs, but such potential ‘free ridership’ should not deter New Hampshire from pursuing an initiative to achieve electric savings for customers in this state.”

(Source: Fisher, Joe. “Granite State Should Grit It Out Alone For Pipeline Capacity, TGP Says.” Natural Gas Intelligence. NGI, June 4, 2015. Web.)

PJM News

As the Industry in Transitions, PJM Expects Challenges

Andy Ott, incoming PJM CEO and President believes the most substantial plight regarding the Regional Transmission Organization (RTO) is the organization’s significant transition in fuel from coal to natural gas, which has been the largest and fastest fuel change in the transmission system’s history. A majority of coal resources are retiring in the region, and Ott has stated that “managing that evolution will be a major focus” when he assumes the position this fall.

Ott believes another major industry challenge is cost allocation of new transmission projects and operational changes. “As we look at some of the impacts of those changes on the power system operation, one of the things we saw with the polar vortex, for example, was a very big, big shift in the cost or the price of reserves – we call it market uplift. One of the challenges the stakeholders face is dealing with some of these very difficult issues of cost allocation brought on by these changes.” (See FERC OKs $1,800 Offer Cap in PJM.) Demand response, for example, is a concern to the industry, which the Supreme Court is currently in the process finding a solution for. (See FERC Files EPSA DR Appeal with Supreme Court.)

Ott has stated that the core mission will go unchanged and PJM will “maintain open communications and the collaborative, productive relationships with members and stakeholders which are crucial to PJM’s success.” One of the fostered strengths within PJM is “industry leadership and collaboration with stakeholders and states and FERC,” and Ott has vowed to encourage collaboration in the future.

(Source: Herel, Suzanne. “Incoming Pjm Ceo Ott Expects Challenges From An Industry In Transition.” RTO Insider. RTO Insider LLC, April 29, 2015. Web.)
For the First Time Natural Gas Capacity Exceeds Coal in PJM

For the first time in the PJM Interconnection, coal has been surpassed by natural gas as the fuel with the most installed generating capacity. This is mainly due to the significant transition in fuel from coal to natural gas and plant retirements, as well as the competition from low natural gas prices and renewables.

The installed capacity (*Installed capacity refers to the nameplate summer capacity of a resource that can be delivered onto the grid.) from gas generators in PJM totaled 54,600MW in May, about 7% more than the 50,900MW of installed capacity that came from coal, which is essentially a figurative 180 from last year, when natural gas had 12% less installed capacity than coal.

Coal and nuclear resources are still producing the majority of PJM’s energy, but the dependence on natural gas is growing in order to meet peak demand. Grid officials have been paying closer attention to the just-in-time delivery of the fuel and if it could be a reliability risk during cold seasons when pipeline constraints are an issue in the region.

(Source: “PJM Gas Capacity Exceeds Coal For First Time.” Argus. Argus Media Limited, June 2, 2015. Web.)
Overhaul to PJM’s Capcity Market

In June, FERC marked the largest change to PJM’s capacity market since 2006, by approving the new “capacity performance” requirements. The new changes are a result of the record cold temperatures PJM experienced during the winter of 2013-2014. The overhaul is to assure a firm fuel supply. Implementing a “no excuses” strategy, the rule will penalize resources that fail to perform during high demand, but will offer the flexibility to charge high rates for capacity.

A major concern with this new rule has been brought by Agency chairman Norman Bay. Bay said “In short, PJM has purchased little certainty for what may be a lot of money,” and added that the overhaul could let generators charge a substantial amount more, and still fail to perform. It’s been estimated that the rules could cost up to four billion dollars a year.

PJM will not see any changes go into effect until the June 2018 to May 2019 delivery year.

(Source: “PJM Capacity Market Overhaul Approved.” Argus. Argus Media Limited, June 10, 2015. Web.)
Regulatory Corner

The Massachusetts Department of Public Utilities has terminated a controversial rule that allowed utilities to recalculate customers’ bills who switched electricity suppliers, effective immediately.

“The Department eliminates the basic service bill provision, effective as of the date of this Order,” DPU officials wrote in an order released in April. “Electric distribution companies shall not recalculate customer bills for customers who switch from basic service to competitive supply service.”
Customers most affected by the rule were Eversource customers from Western Massachusetts. According to data provided to the Department of Public Utilities by Eversource, customers who switched electricity suppliers in March were billed an average of $144 retroactively.

Customers most affected by the rule were Eversource customers from Western Massachusetts. According to data provided to the Department of Public Utilities by Eversource, customers who switched electricity suppliers in March were billed an average of $144 retroactively.

(Schoenberg, Shira. “State Kills Rule penalizing Utility-Switching Electricity Customers.” Masslive. MassLive LLC. Web.)

Tax Changes in Rhode Island Took Effect on the First of July

All sales of electricity and gas will be exempt from sales and use tax. (Under prior law, the exemption applied only to electricity and gas furnished for domestic use by occupants of residential premises, and to electricity and gas used in the manufacturing process. Under new law, the exemption applies to electricity and gas furnished for any type of use, including any business use.)

(“Tax Changes Take Effect Tomorrow.” Rhode Island Department of Revenue Division of Taxation. RI Department of Revenue, June 30, 2015.)

By | 2016-08-21T20:24:23+00:00 August 21st, 2016|Categories: Uncategorized|0 Comments

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