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Update: Is New England’s Winter Reliability Program Working?

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In a previous blog article, I discussed how New England (NE) had experienced some of the highest energy prices in the country last winter, and because of the region’s dependence on natural gas and lack of sufficient gas pipeline infrastructure, we can expect to see a repeat this winter, and, again, probably next winter.

As an interim solution, the ISO-NE and the New England Power Pool Participants Committee are attempting to address NE’s most pressing reliability issues: increased reliance on natural gas-fired generation and resource performance during periods of stressed system conditions. Their plan to address these issues this winter is also known as the ISO-NE’s Winter Reliability Program.

Last winter, during a cold spell in January 2013 and Winter Storm Nemo in February, reliability in NE was threatened when some natural gas generators were unable to run because they couldn’t get a supply of gas to their plants due to pipeline constraints. Additionally, many oil-fired generators had limited oil inventories, and in some cases, ran out of fuel.  Grid reliability was maintained, just barely, but the situation brought to light the vulnerabilities of NE’s reliance on natural gas.

This winter, the ISO-NE’s Winter Reliability Program runs from December through February, and is intended to aid ISO-NE in maintaining reliability on the electric grid. Through a competitive bidding process, the program procured almost two million megawatt-hours of incremental energy from oil-fired and dual-fuel (oil or gas) generators, and demand response resources. The cost of the program, $75 million, will be socialized among all market participants. The additional costs associated with procuring backup generation is expected to result in higher electricity bills for customers during these months.

So, is the program working?

We should probably reserve judgment on how successful the program is until it’s over, as we still have one more month to go, and, as we’ve seen so far this winter, things can change dramatically in just a few weeks. But some facts are certain: the Northeast is experiencing one of the coldest winters they’ve seen in quite some time, and energy prices in NE were NOT the highest in the country this winter.

The main gas pipeline serving NE is the Algonquin Gas Transmission line. Among the three main pipelines serving NE and the New York City area, Algonquin invariably realizes the highest prices. On Jan 21, prices reached a high of $95/MMBtu for next-day deliveries. Yet, next-day deliveries on the Texas Eastern Pipeline (TETCO) serving New York City climbed as high as $98, and trades on the Transcontinental Pipeline (TRANSCo), which also serves NYC, eclipsed $130! So, something is different this winter and is keeping prices in NE relatively in check.  Is it the Winter Reliability Program, the ISO-NE’s band-aid for this winter?

Or could it be the liquefied natural gas (LNG) deliveries into NE via Canaport? In years past, NE relied heavily on LNG shipments to supplement their gas usage, but with gas prices so low lately (before the onset of this winter), most LNG shipments were bound for overseas deliveries due to global gas prices trumping domestic prices. With the recent rally in U.S. gas prices, especially in NE, some LNG is finding its way into northeast markets.

On Friday, February 7, the ISO-NE released a report on the status of the Winter Reliability Program. According to the report, although the frigid January caused NE to burn quite a bit of program oil (2.29 million barrels), they still have a good overall supply left (1.87 million barrels) for the remainder of the season. The report also brought to light additional issues related to reliability in NE, such as the availability and transportation of oil, unplanned outages brought on by the extreme cold, and managing a limited ‘fuel inventory’ for a large portion of the generator fleet.

The Winter Reliability Program is clearly not the long-term solution to NE’s electric grid reliability issues, but it does seem to be accomplishing what the ISO-NE set out to do: provide a temporary fix until permanent long-term solutions can be put into place.

Posted: February 12, 2014