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New England Pipeline Constraints Result in ISO Winter Reliability Program, Added Costs for Consumers

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In the winter of 2012, the New England (NE) energy market experienced extreme natural gas price volatility. This occurred because of the region’s high dependency on natural gas for both heating and electricity generation, and due to serious gas pipeline infrastructure constraints in the region.

The equation makes sense, but doesn’t fare well for NE. Less gas flowing to the region + decrease in natural gas imports from Canada + temperatures dropping + an increase in demand = price volatility.

The Independent System Operator of New England (ISO-NE) and the New England Power Pool (NEPOOL) Participants Committee addressed the region’s most pressing reliability issues: increased reliance on natural gas-fired generation and resource performance during periods of stressed system conditions. It’s apparent that interim short-term action is required to maintain reliability, especially because long-term solutions won’t be available until November 2016 (i.e. when pipeline projects will be completed). Thus, ISO-NE enacted the Winter Reliability Program.

This program is intended to aid ISO-NE in maintaining reliability during the 2013-2014 winters by procuring up to 2.4 million MWh of energy through a competitive bid process from a combination of oil-fired generators, dual-fuel generators, and demand response assets. The Program has four components: demand response, oil inventory service, dual-fuel testing, and market monitoring changes.

How is the program being paid for?

The Federal Energy Regulatory Commission (FERC) approved the socialization of costs among all market participants being served by their local utility or retail electric supplier.

How does this affect business energy consumers? 

Businesses located in Massachusetts, Maine, Rhode Island, and Connecticut — whether being served by their local utility or retail electric supplier — will be impacted by the cost of this program during its duration: December 2013 through February 2014. The additional costs associated with procuring backup generation will result in higher electricity bills during these months.

If you are a Direct Energy Business customer, we will be providing specific communications in the very near future about how we plan to address these costs during the term of the program. In the meantime, please reach out to your Direct Energy Business Sales Representative or Portfolio Strategist with questions.

Posted: November 14, 2013

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