Saturday, April 19, 2014
Worried that there might not be enough natural gas in New England this winter to keep all the lights on reliably, the region's electric grid operator wants oil-fired power plants to stockpile 4.2 million barrels of oil by Dec. 1, for backup.
Tom Welch, chairman of the Maine Public Utilities Commission
Staff file photo by Joe Phelan
It also wants more big businesses to agree to shut down power-guzzling equipment during severe weather, to help lower the demand for electricity.
ISO-New England is seeking to avoid a repeat of last winter, when a five-day cold snap in late January and a blizzard in early February tested the region's power supply. During the cold snap, some big businesses were told to cut back energy use. During the blizzard, more than six gas-fired power plants informed ISO-New England that they couldn't get fuel. At the same time, some oil-fired units reported only a few days of fuel left, and some had deliveries suspended in the storm.
ISO-New England has been increasingly concerned about the risk from the region's overdependence on natural gas for making electricity, as aging, uneconomic oil plants are being taken off line. In a recent operations summary of last winter's events, it called the condition "unsustainable."
The growing risk has the ISO searching for short-term solutions. The idea of stockpiling oil and asking more businesses to cut power use to avoid a crisis is the focus of a draft reliability plan the grid operator is preparing for the 2013-1014 heating season.
The ISO soon will ask the Federal Energy Regulatory Commission to approve the plan. A draft copy was obtained last week by the Maine Sunday Telegram.
The urgency highlights the broader challenge facing energy providers and policymakers: Adding new pipeline capacity to bring more gas into New England is one option that could help solve the gas shortage. However, even the most-likely-to-happen pipeline projects are at least a couple of years away -- no help if the Northeast has an especially severe winter before then. The threat of rolling blackouts remains a real one this winter, the ISO maintains, if a critical mass of power plants go off line during a period of superhigh demand.
"It was a delicate balancing act during the cold spell and the blizzard," said Marcia Blomberg, a spokeswoman for the ISO. "If the winter had been colder and other circumstances had been less favorable, the situation could have been more severe."
Blomberg declined to say how close the systems operator was last winter to triggering rolling blackouts, saying several emergency measures could have been taken short of that. She also noted the ISO is working with power plants and pipeline operators on market-based solutions, such as better coordination of gas deliveries, that could ease the problem.
"This really is an insurance policy for the region," she said of this winter's oil stockpile plan.
Ratepayers across New England would pay for this insurance policy, although it's too early to say what it would cost and how the charges would be billed. The program is estimated to cost $16 million to $42 million, Blomberg said.
Despite the ISO's pronouncements, not everyone agrees the plan is the most cost-effective, or even necessary. One environmental group, the Conservation Law Foundation, opposes the extra costs and air pollution that would come from burning more oil. It contends the ISO is using scare tactics to promote pipeline expansion in New England. Instead, the group proposes importing more liquefied natural gas through Atlantic Canada.
State utility regulators also are weighing the merits of ISO's proposal.
"I'm not thrilled with the idea of solving the problem with oil," said Tom Welch, chairman of the Maine Public Utilities Commission, "but on the other hand, I understand the ISO's reliability situation."
Welch said he'll be looking at questions of balance. Could the same measure of reliability be gained by dialing in more emergency power cutbacks, a strategy known as demand response? Could more LNG, as the Conservation Law Foundation suggests, also lessen the need for oil?
"For the next two to four years, we're going to be fighting this battle," Welch said.
In the short term, this proposal is good news for Wyman Station in Yarmouth, Maine's largest power plant. The plant's owner, NextEra Energy Resources, has put the unit up for sale, and this plan could increase Wyman's value.
Steve Stengel, a NextEra spokesman, declined to answer a question about the effect on the power plant. He said the ISO's proposal still is developing, and the company doesn't want to comment. Stengel did note that Wyman ran on roughly half the days last January and February.
New England has 117 oil-fired power plants, most of them at least 30 years old.
Oil units such as Wyman represent more than 20 percent of New England generating capacity. Because oil is so much more expensive these days than natural gas, however, the fleet actually provides only 1 percent of electricity needs. The plants run only on the coldest days of the year, when demand for natural gas is at its peak for both heating and electricity.
The shortage of gas on those frigid days sent gas prices soaring last winter, which in turn increased wholesale electric rates. The ISO calculates that wholesale electric prices during the six weeks following Jan. 1 climbed to $1.9 billion, compared to $676 million for the same period in 2012.
In its summary, the ISO makes the point that last winter's cold was far from the worst possible. The days from Jan. 21 to 25 were the coldest since 2009 but not nearly as low as a cold snap in 2004, when the power system set a record for peak demand.
Because oil is expensive and the plants are needed infrequently, their owners are reluctant to fill the tanks. An ISO survey found that, on average, tanks are kept only one-third full, and inventories could be depleted quickly in severe weather.
To ensure that doesn't happen this winter, the ISO proposal would set up a competitive bid process to stockpile 4.2 million barrels, or 176 million gallons, of oil. This amount was calculated to satisfy a projected amount of energy demand in December, January and February.
The bidders could include oil-fired plants, and ones that can burn both oil and gas. If selected, the plants would face financial penalties if they didn't have the oil stockpiled by Dec. 1 or couldn't generate power when needed.
Even so, stockpiling oil is an expensive approach that will increase air pollution, and is really about making a case for new gas pipelines in New England, according to Jonathan Peress, director of clean energy and climate change at the Conservation Law Foundation.
"You never want a serious crisis to go to waste," Peress said, quoting President Barack Obama's former chief of staff, Rahm Emanuel.
The ISO is using the fear of blackouts as a way to build support for pipelines, Peress said. As an example, he cited Maine's pending law that would give the state the authority to contract for millions of dollars' worth of pipeline capacity, which would be funded partly by ratepayers. A cheaper fix, he said, is to arrange for more LNG to move through the existing interstate Maritimes & Northeast Pipeline, which runs through Maine from Nova Scotia to Massachusetts.
Repsol, the lead owner of the underused Canaport LNG terminal in Saint John, New Brunswick, says it can fill in the gas gap with imports. In a document related to the pending case with federal regulators, Repsol says it can supply gas to New England during peak demand periods this winter, at competitive prices.
The ISO is rejecting this solution, however. Blomberg, the ISO spokeswoman, said the organization has a "level of confidence" about oil storage but can't say the same about LNG.
Regarding conservation, Blomberg said the ISO is working to boost the level of demand response, but the complex software and rules won't be in place until 2017. For this winter, a bid process similar to the oil stockpiling would be conducted for demand response, seeking companies that can cut the power use to certain standards within 30 minutes of being notified. This would expand an existing program, in which businesses are paid to curtail demand in a power pinch.