Natural gas price surge won’t push up utility rates
Massachusetts consumers are unlikely to see their utility bills rise — at least in the short term — as a result of the recent frigid weather that pushed up demand for heat and electricity and sent wholesale natural gas prices surging last week.
Natural gas prices not only affect heating bills, but also electric rates because the fuel is used to produce about 70 percent of the state’s electricity, according to the US Department of Energy.
About half the state’s homes heat with natural gas.
Natural gas prices on New England spot markets jumped to their highest levels in nearly a decade last week as the region’s limited pipeline capacity constrained supplies needed to meet the weather-driven demand for heat and electricity. The jump briefly made the fuel more expensive than oil.
Short-term price jumps in wholesale markets, however, don’t necessarily translate to higher home utility bills. A stretch of milder temperatures — as is forecast for later this week — could lower demand and daily wholesale prices, offsetting the recent high price before utilities adjust their rates.
Those adjustments occur every six months, with the approval of state regulators.
In addition, utilities usually buy much of the electricity and natural gas they distribute through long-term contracts, which also helps moderate temporary price spikes.
“Prices did go up markedly last week,” said David Graves, a spokesman for National Grid, the state’s second-largest utility, but “we don’t really buy on the spot market.”
Michael Durand, spokesman for Northeast Utilities, which owns Boston’s NStar, said long-term contracts often mean “customers are protected from these price swings.”
In Massachusetts’ deregulated natural gas and power markets, utilities don’t produce the energy. They buy it in wholesale markets and pass the costs to customers, adjusting rates regularly.
National Grid is next scheduled to adjust rates in May. NStar and Western Massachusetts Electric Co., both part of the larger Northeast Utilities company, are set to change in July. In recent years, electric and natural gas rates have generally declined because of abundant natural gas supplies from US shale rock formations that have lowered prices.
That trend, in turn, has led power producers to use more natural gas to make electricity and homeowners to switch to natural gas for heating and cooking.
But Gordon van Welie, chief executive of ISO New England, the region’s power grid operator, said he worries that New England’s growing dependence on natural gas could mean higher electric and heating bills in the long term because of limited pipeline capacity.
As demand for natural gas grows, van Welie and others worry that pipelines serving New England won’t be sufficient to meet it, leading to long-term price increases that will boost consumer bills.
In the future, extreme winter weather that increases the demand for heat could leave power plants without enough natural gas for electricity, leading to power interruptions, according to a study published by ISO New England last year.
“I think we’re heading into a phase where we’re going to see a lot more volatility in natural gas prices,” van Welie said. “This is just the start of what we’re going to see in this region until we see more investment in pipeline infrastructure.”
Spectra Energy Corp., a Houston pipeline company, has proposed enlarging the Algonquin Gas Transmission line that serves New England to help bring in fuel from the nearby Marcellus shale formation, but the proposal is still in its earliest stages.