Frequently Asked Questions
Q: What is the Coalition to Lower Energy Costs?
A: The Coalition to Lower Energy Costs (CLEC) is a non-profit Massachusetts association of individual consumers, labor unions, larger energy consumers and institutions concerned about the threat to New England’s families and economy from skyrocketing natural gas and electric prices.
CLEC intends to help consumers understand why New England is experiencing a serious crisis in skyrocketing energy costs, help fix the causes of these cost increases, and to ask that public officials understand the necessity of building the necessary natural gas pipeline infrastructure to bring adequate capacity to our region and lower our energy costs.
Q: What is our current energy cost crisis?
A: New England families and businesses currently pay the highest prices for natural gas even though an abundant source is just 300 miles away. New England’s natural gas pipeline capacity has not kept pace with the rapid growth of natural gas fired power plants. The region made the decision to move away from coal and oil fired electricity power plants for environmental reasons but never put in the adequate transmission pipelines to bring in the gas.
Q:Who is most severely impacted by the shortage of natural gas pipeline capacity?
A: The shortage of natural gas pipeline capacity hurts every New England consumer of natural gas or electricity. When pipeline space becomes limited, the price of transmittal of the gas commodity gets bid up through market forces. Obviously, direct purchasers of natural gas, like large manufacturing facilities, pay an immediate premium. Homes and businesses, however, get their natural gas through their local utility. The price they pay is usually averaged out, but utilities are beginning to increase their prices to reflect the high costs that they have had to pay for gas in 2012, 2013, and especially 2014.
The electricity side is more complicated but more important because everyone in New England pays for electricity. In the New England wholesale electricity market, a natural-gas-fired generator is the “marginal generator” for the vast majority of the year, which means it is the last generator that is ordered to turn on to meet all electricity demand in New England. The costs incurred by that generator, primarily fuel costs, represent the market-clearing price that all generators running at that time in New England receive for their electricity. Thus, when the price of natural gas rises from $4 to $78/MMBtu, and the marginal generator’s costs increase by $74/MMBtu, every single generator in New England receives an equivalent price increase. Roughly, such an increase works out to the cost of a single kilowatt hour rising from 4 cents to 78 cents.
As with natural gas utilities, most New England electricity consumers get electricity through their local utility. They pay retail rates, which are partially insulated from wholesale price fluctuations through long-term contracts. However, as Massachusetts electricity consumers are beginning to find out, their rates are going up dramatically, and will for several more years just to reflect the substantially higher costs of winter 2012-13 and 2013-14.
In short, those most hurt by the shortage in natural gas pipeline capacity are low-to-middle income consumers and businesses, who simply cannot afford higher utility bills. Additionally, those fiscally and environmentally responsible people who decided to convert from oil to natural gas (because it is cleaner and so much cheaper) are hit doubly hard, on the gas and electricity side.
Q: How much will energy costs increase?
A: A good example is the recent rate increase by National Grid, the utility that delivers electricity to millions of Massachusetts citizens. National Grid announced that a 500 kilowatt hour per month consumer would see a total increase in their bill of 37%. While these figures are accurate, they tell only part of the story. The part of a National Grid consumer’s bill that is increasing is the energy or kilowatt-hour (KWh) charge, not the delivery part of the bill. The increase in the energy charge is actually 96%, which when averaged with the delivery component of the bill produces a net increase of 37%. But, the reality is the energy charge rose from almost $.09/KWh to more than $.16/KWh. Not to pick on National Grid, (because it’s not National Grid’s fault that wholesale electricity prices have ballooned), but here’s what a typical fixed-rate customer can expect to see if she uses 627 KW of electricity a month, as is reported by the Energy Information Administration:
Previous fixed rate (5/1/14 – 10/31/14): $.08277/KWh * 627 = $51.90 per month on energy only.
New fixed rate (11/1/14 – 4/30/15): $.16273/KWh * 627 = $102.03 per month on energy only.
When you add all of the other charges, your total utility bill could look like this:
|
National Grid Delivery Charges |
Example January 2015 Delivery Charges |
|
Customer Charge = $4.00/month |
$4.00 |
|
Distribution Charge = $.03697/KWh up to 600 KWh; $.04359/KWh after 600 KWh |
$22.18 + $1.18 |
|
Transmission Charge = $.02304/KWh |
$14.45 |
|
Transition Charge = $.00106/KWh |
$.66 |
|
Energy Efficiency Charge = $.01004/KWh |
$6.30 |
|
Renewables Charge = $.0050/KWh |
$3.14 |
|
National Grid Energy Charges |
Example January 2015 Energy Charges |
|
Energy Charge = $.16273/KWh |
$102.03 |
|
|
TOTAL: $153.94 |
Other Massachusetts consumers can expect similar increases in their energy charges and substantial increases in natural gas charges from their local distribution company.
Q: Can New England meet its needs energy needs with just increased energy efficiency and renewable generation?
A: The estimated need of 2 million cubic feet per day of new natural gas pipeline capacity assumes continuing increased investment in energy efficiency and renewable generation in New England. New England spends almost a billion dollars a year on energy efficiency now and those amounts are increasing in several states. If you look at ISO New England’s “queue,” which reflects generation projects under development, 44% of the over 5,000 MW proposed is wind power. Further, New England, and especially Massachusetts, is increasingly turning to rooftop solar panels. Additionally, renewable generation from northern New England and Canada is planned and hopefully will succeed. Despite these positive trends, most renewable energy requires natural gas power plants to be available when the wind stops or the sun does not shine. ISO New England needs to know when and where it will get its electricity, at all times. ISO New England strongly believes we need substantial new pipeline capacity.
CLEC supports an “all of the above” energy strategy, but the strategy must include the additional two billion cubic feet of gas pipeline capacity with at least 800 million cubic feet per day provided by the proposed line from Albany to Dracut for both cost and grid reliability purposes.
Q: How do we know we need at least 2 billion cubic feet per day of additional natural gas pipeline capacity? Will a smaller amount still cut costs?
A: The two billion cubic foot per day amount is the minimum necessary to fully meet New England’s existing need for natural gas for heating homes and businesses and generating electricity throughout the Winter. When New England has adequate gas pipeline capacity, we will not pay any “tax” for natural gas and our energy costs will be more like those of places such as New York and Pennsylvania. The “tax” is called the “basis differential,” which is a fancy term for the premium consumers have to pay to get necessary natural gas through the existing inadequate pipelines. The two billion cubic feet number results from extremely conservative studies of existing demand and does not rely on any projections of future increases in demand for natural gas or electricity. (New England remains the most oil-reliant region of the Nation, and thousands of consumers in every state are seeking to switch from expensive and polluting heating oil to cleaner, cheaper, natural gas.) Any increase in natural gas pipeline capacity helps to reduce the tax or basis differential, but the most sensible course of action is to build enough capacity to meet our existing needs and avoid the human and economic harm of skyrocketing gas and electricity prices.
The studies estimating the need for two billion cubic feet to meet existing need make a number of assumptions about current natural gas and electricity supplies which, if too conservative, means the two billion cubic feet estimate is substantially too low. For example, these studies assume a continuation of the receipt of 350 million cubic feet per day of natural gas from the Sable Island and Deep Panuke fields off Nova Scotia. Nova Scotia Power has recently announced that these fields are rapidly depleting and will provide little or no gas as of 2016. Further, New England has 8,000 megawatts of older coal and oil plants on the verge of retirement and shutdown out of a total available capacity of 33,000 MW. Such retirements and shutdowns would further increase the need for gas-fired electricity generation as at least partial replacements. Ironically, however, these plants may not be able to shut down without additional pipeline capacity to meet the needs of existing natural-gas-fired generators. Essentially, the grid operator, ISO New England, may deem these economically “at-risk” plants essential to maintain electric reliability, and offer them expensive contracts to stay in business. Our costs will rise more.
Q: Can New England get by with small additional pipeline expansions?
A: All increases in gas pipeline capacity will help, including Tennessee Gas Pipeline Company, LLC’s Northeast Energy Direct Project, Spectra’s Atlantic Bridge and AIM projects and others. But, the strategy advocated by some — of taking “small bites”—will not meet the need for two billion cubic feet of capacity and solve the reliability concerns resolved by the Tennessee pipeline from near Albany, NY to Dracut, MA.
The risk of taking a “small bite” is that it won’t even maintain the already unacceptable status quo. For example, if New England increases gas pipeline capacity by several hundred thousand cubic feet per day to serve local gas distribution companies (“LDCs”) rather than gas-fired power plants, there will be some small benefit to electricity generation for a few years until growth in heating demand served by the LDCs uses the full LDC purchases. Furthermore, additional new capacity may be needed just to fill the void left by diminishing Canadian gas supplies. If growing demand for heating are combined with lost Canadian supply, New England may be worse off, even with several hundred thousand cubic feet per day added to the system in the next several years. Should we be telling consumers to stop converting from oil to natural gas?! Two LDCs in Western Massachusetts have been forced to declare a moratorium on connecting new retail gas customers because of the gas pipeline bottlenecks.
Those advocating for the “small bites” additions to gas pipeline capacity may do so in the hope that consumers will be “satisfied” if their rate increases are cut by one-quarter or one-third rather than completely eliminated. CLEC believes this is untrue and that New England consumers want to pay approximately as much for energy as their fellow citizens across the country, almost all of whom pay no “tax” or basis differential. That’s why the two billion cubic feet per day minimum capacity increase is essential.