Unlike natural gas customers in Massachusetts, electricity customers are stuck with high rates for the rest of the winter — even though the extreme price spikes that marked New England energy markets in past winters have not materialized this season.
Those electricity rates — which jumped as much as 37 percent — were based on projections that prices in wholesale markets would surge toward last winter’s record levels. Average wholesale electricity prices, however, are running at about half of last year’s; customers should recoup at least some of this money in the lower rates when utilities buy new supplies from power generators later this year, officials say.
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Earlier this week, Eversource Energy, formerly known as NStar and Northeast Utilities, said it was implementing a midwinter price cut for 300,000 natural-gas customers who use the fuel to heat their homes in Massachusetts. The utility cited falling natural-gas prices for the rate reduction, which will cut household bills by about $20 a month.
National Grid has also lowered its natural-gas winter rates by about $20 per household, also due to falling fuel prices.
However, Eversource and National Grid said they can’t cut rates for their nearly 2 million basic-service electricity customers because prices paid to power-plant owners are set by six-month contracts that can’t be changed until spring.
In recent years, New England energy markets have soared as extreme cold and limited pipeline capacity combined to create strong demand at a time of short supplies. The resulting rise in costs for natural gas in turn spurred skyrocketing electricity prices, because most New England plants use the fuel to generate power.
At their peak last winter, electricity prices surged to nearly $1,300 per megawatt hour, far above previous averages of about $36.
Power producers expected similar conditions this winter and raised prices significantly when utilities contracted for winter supplies in the fall. But shipments of liquefied natural gas, or LNG, into the region have dramatically increased this winter, and at prices 50 percent lower than last winter. The change has prevented natural gas shortages caused by pipeline constraints and moderated fuel prices.
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The peak hourly spot price for electricity this winter was $487.32 on Feb. 15, about one-third the level of last year’s highest price. Meanwhile, the average spot market price from this winter was about $65 per megawatt hour, compared with an average of $138 last winter, according to ISO New England, which operates the regional electric grid.
In January, Distrigas of Massachusetts LLC brought an extra shipment of LNG into its Everett terminal, boosting its total monthly imports to 8 billion cubic feet, up from 5.5 billion cubic feet in January 2014. That’s enough gas to heat 80,000 homes for a year, according to Distrigas.
The company said it expects a higher volume of LNG imports this month as well.
Meanwhile, Excelerate Energy of Texas is finally using its $350 million offshore floating buoy system, which receives natural gas from LNG ships anchored about 13 miles off the coast of Gloucester and transports it via underwater pipelines into the land-based pipeline system. Excelerate’s Northeast Gateway Deepwater Port, as the buoy system is known, hadn’t been used since 2010; this year it has received one shipment of LNG.
Frank Katulak, chief executive of Distrigas of Massachusetts, owned by France’s GDF Suez, said increased production of natural gas in the United States and other countries, such as Australia, has helped drive down global LNG prices.
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Demand for LNG also has slowed in Europe and Asia, particularly in Japan, which this year is firing up many nuclear plants that were closed after the devastating tsunami and resulting reactor meltdown in 2011. Until recently, Japan was devouring huge amounts of LNG to help generate electricity, driving up global prices in the process, industry officials say.
Now, said Katulak, “there’s an oversupply of LNG.”
For consumers, they’re stuck with the higher electric rates set a few months before the onset of winter. Officials at National Grid, which raised residential rates by 37 percent, and NStar, which boosted them by 29 percent, stress that they have virtually no control over the prices charged by power plants for electricity.
By law, utilities accept bids every six months from power-plant owners when setting winter and summer electric rates; utilities must accept the lowest bids from power plants. Last winter, the preset seasonal rates buffered consumers from surging prices in wholesale markets.
Jake Navarro, a spokesman for National Grid, said the seasonal contracts are based on estimates of what power prices will be months later. In some years they’re on target, he said, and in others they’re not. “It balances out in the end,” Navarro said.
Both National Grid and Eversource Energy are expecting substantial cuts in electric rates this spring, reflecting the plunging prices of natural gas.
Jay Fitzgerald can be reached at jayfitzmedia@gmail.com.
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