Check out the Original Article Here in the Union Leader by Dave Solomon

March. 14. 2015 | Dave Solomon

New England electricity customers, already facing the highest rates in the nation, are in store for some real sticker shock over the next four years, as the price paid to power plant owners just for promising to stay online goes through the roof.
The collective cost to ratepayers of securing this “future capacity” has been around $1 billion a year since 2010. That cost holds through 2016. But when 2017 rolls around, it shoots up to $3 billion and in 2018 will hit $4 billion.
Keep in mind, that is money the power plants will get in addition to whatever profit they make from the actual sale of electricity.

The big spike in the size of these so-called “capacity payments” is one of many factors contributing to the decision by Eversource Energy to sell off its PSNH power plants, after years of resisting divestiture. The plants are worth more than ever, just for being there.
“What you are seeing is the cost of insuring our energy supply,” said Emile Clavet, co-owner of ENH Power, which like all energy suppliers pays the capacity charge then passes it along to consumers. “We’re paying for the insurance of knowing we are going to have the capacity to meet a growing demand.”

Pulled both ways

The increase in that insurance is attributed to the fact that the supply of electricity in the region is diminishing as old plants retire and new projects can’t get off the ground, all while energy demand is increasing.

But critics of the process say demand has not increased nearly enough to justify a doubling or tripling of the capacity rates. They point to the fact that the total capacity needed to meet New England’s energy needs has only grown from 32,200 megawatts in 2010 to a projected 34,100 megawatts in 2018.

They worry that energy market speculators and power plant owners are gaming the system to achieve maximum payouts, while regulators are failing consumers.

A group of New England senators and representatives, led by Rep. Edward Kennedy III of Massachusetts and including Rep. Frank Guinta of New Hampshire, is pressing the Federal Energy Regulatory Commission to take a harder look at these increases.

A split commission vote

The commissioners were split 2-2 last year, which meant the rates for “forward capacity” in 2017 were approved by default. The board was short one member until earlier this year when a fifth member was sworn in. Kennedy, Guinta and others are hoping the fifth member can sway the board in the other direction.
“FERC has an obligation to Granite Staters to insure energy reliability at reasonable rates in an open and transparent way,” said Guinta. “New England generally and New Hampshire specifically have experienced sky-rocketing increases. This is unacceptable. I will continue to press for answers and urge the reconsideration of these filings.”
In late January, Guinta was among 19 members of Congress from New England to sign a letter urging the commission to reconsider its 2014 decision, in light of the confirmation of the fifth member. Commission Chairman Cheryl LaFleur on Feb. 18 responded that the case could not be re-opened and that the rates for 2017 in her view are “just and reasonable.”
Failing to get reconsideration of the 2017 capacity cost of $3 billion, the same group of lawmakers on Jan. 30 urged FERC to closely monitor capacity payments proposed for 2018.

On Feb. 27, the independent operator of the New England power grid, ISO-NE, announced that the payments for 2018-19 would total $4 billion, pending FERC approval.

“These results further underscore the dramatic deficiencies in our region’s energy markets,” said Kennedy in an email to the New Hampshire Sunday News. “By failing to address – or even acknowledge – the painful impact this broken system is having on ratepayers across New England, FERC continues to fall short of its regulatory responsibilities.”
While the 2017 rates took effect without much push-back, the process is likely to be more contentious this time around. FERC is reviewing the 2018 rates submitted on Feb. 27, and is accepting comments until April 13. ISO-NE has asked FERC to rule within 120 days.

Since the 2018 results were released, Kennedy’s office has been in touch with both FERC and ISO-NE to protest and is trying to schedule an in-person meeting between commissioners and members of the New England Congressional delegation.

Cost to consumers

It’s difficult to determine exactly how these charges will affect individual electric bills because there are so many variables.

Eversource-NH, the largest provider in the state, has been in a unique situation. It owns power plants, so it receives capacity revenue for those plants, and uses that revenue to offset some of the capacity costs it has to pay as an energy supplier.
That, of course, will change once the plants are sold.
People who live in parts of New England where supply is severely stressed, like southeastern Massachusetts, pay more than people in other parts of the region, thus Kennedy’s intense interest.
At ENH Power, New Hampshire’s largest independent and unregulated supplier of electricity, Clavet says capacity insurance now represents about 10 percent of the ENH energy supply charges to consumers. That could rise to 20 percent in 2017 and 30 percent in 2018.
According to Bart Fromuth of Resident Power, current capacity expense accounts for 1 cent on an energy supply charge of 10 cents per kwh. In 2017, capacity expenses will add 2 cents to the rate. In 2018-19, the impact to customers will triple to about 3 cents per kwh from the current costs, Fromuth said.
So while the impact may vary from state to state and within each state, the upward pricing pressure from the capacity auctions has affected all ratepayers, with limited impact on new power plant construction. Despite two rounds of skyrocketing capacity prices, the region will only see three small power plants debut between now and 2018, adding 1,000 megawatts of new generating capacity.
Relief could be years away. According to the grid operator’s annual report on 2014, “The region could see high prices in future (capacity) auctions because of additional resource retirements, particularly if new generators or transmission projects face siting and permitting challenges that cause significant delays.”
dsolomon@unionleader.com

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