Dan Dolan is the President of the New England Power Generators Association, a trade organization representing competitive electric generating companies in New England.
REAL sat down with Dan to discuss its most recent blog post, Winter in New England – How this year is different from last.
Q: Thanks for being here, Dan. Your recent blog post mentions that New England is starting this winter season with retail electricity prices below those of last winter. Can you explain how retail competition & community aggregation have contributed to these lower prices, and what specific factors have played a role in this improvement?
A: “There’s two elements to it that we see; the first is the standard offer rates, which are set independently of the retail market and community aggregation. There we’ve seen a substantial reduction, largely because the market is feeling less risk from the global commodity crisis that we saw last year at this time, largely driven by the Russian invasion of Ukraine. What we’ve also seen, is that coming out of last winter there was a whole lot more attention put on the retail market and alternatives that consumers could have.
Purely anecdotally, I heard from dozens of people in my community looking at alternatives to standard offer rates for the first time in years because of the jumps in the standard offer market and the fact that there was much more competitive pricing as an alternative in the retail market.
At the same time, we’ve already seen for years a wave of community aggregation taking hold in New England, and I think there was a lot more momentum behind that because of their ability to negotiate different types of products for different periods of time in the retail market that created substantial savings. I think you put all of that together and this year we are seeing both a healthier market in terms of consumers looking at alternatives, but also just a much more calm market on the fundamentals with commodity pricing.”
Q: One of the key factors mentioned in the post is the stabilization of commodity prices. Could you elaborate on the impact of stabilized commodity prices on energy costs in New England and how this trend is expected to continue into the upcoming winter?
A: “So New England is the last market in the United States that still is priced on global natural gas prices. We’re the last market that also still imports natural gas internationally, particularly for peak periods in the winter. Because of that, we are much more susceptible to whatever happens in Europe and the global LNG prices. Clearly, at this time a year ago, there was a true energy crisis and prices exploded. We felt that and we saw substantial run up in our electricity prices.
This year, what we’ve seen a year and a half into this situation, is natural gas storage levels at much higher capacity than they were a year ago. Some of the worst case scenarios about Russia fully cutting off energy supplies to Europe or Europe unilaterally trying to cut itself off from Russia are largely alleviated. We’ve seen alternatives come in largely driven by U.S. LNG helping to fill those gaps. Because of that, we’ve seen both the fundamental price come down but also the risk level felt in the market has dampened. There is not the feeling that those absolute worst case scenarios are likely at this point.”
Q: The post also discusses concerns about energy reliability in the past. ISO New England appears to have improved its analytical tools and is running the Inventoried Energy Program (IEP) during the next two winters. How will these developments enhance energy reliability in the region, and what benefits can consumers expect?
A: “Yeah, so the conventional wisdom in New England has been for decades that we’re on the cusp of an energy crisis in the winter months. And yet, for the last couple of decades, we’ve been able to manage through it. Certainly at different points in time, prices have been volatile and margins have been tight, but we’ve always been able to keep the lights on. What we are now seeing from ISO NE in the last year is an affirmation of that. As it takes a sharper look at the reliability situation, in terms of both fuel use and then the capability of electricity production, New England is not as much in a crisis stance with respect to reliability. Prices will continue to be volatile and that’s something that needs to be mentioned here. But from a reliability situation, there is a higher comfort level. We see that born out in the marketplace.
On the coldest days last winter, on February 3rd and 4th, New England was actually exporting a thousand megawatts to help keep the lights on in Quebec. So we have seen our fleet be resilient, flexible, and be able to meet needs. Then as we look at programs like the Inventoried Energy Program, it just creates more operational certainty. It takes some of the risk out of fuel purchases, in particular for the oil facilities that serve as a key swing resource and in the winter months. So you take all of that together, and it’s difficult to ever guarantee a perfect outcome, but we feel much more comfortable sitting here today than we did a year ago at this time.”
Q: Does the fact that so much electricity is imported have any influence on reliability?
A: “It creates exposure for us, particularly given as cold as New England gets in the winter. But Quebec feels all that same weather, just a little bit more acutely in the winter months. So, there is a concern that as we look at certain key situations. I mentioned February, 3rd, and 4th. We also had a big event last Christmas Eve on December 24th, where we also saw a pullback of winter delivery from Quebec.
Even on July 4th weekend, on July 5th, we saw a similar issue driven by wildfires in the province. But you take all these things together and there’s a single large exposure that New England has to the transmission interconnections. The vast majority of the hours of the year it provides reliable electricity to the system. But how it performs, particularly in the peak winter periods, is something that we believe needs to be much more granularly modeled and addressed.
ISO New England is only now beginning that process. Our hope is that the process can move fairly quickly given the experience of the last year. But it is a concern that we have, as we see continued demand growth in Quebec and as New England starts relying more on electricity for heating through heat pumps and other sources.”
Q: The blog post touches on changes in the electric grid to incorporate renewable resources and the interdependencies between natural gas and electricity. How do these changes affect New England’s energy landscape, and what role does retail competition play in adapting to these evolving circumstances?
A: “Natural gas is and will continue for the foreseeable future to be the key fuel for pricing in the electricity markets. It is by and large that last increment of supply that then sets the price that demand pays for reliable electricity. And so, as natural gas prices swing, we see a very close correlation to electricity price, volatility, and the swings there.
What the retail market allows is for often times a wider view over a longer period of time with some of the specialists at the retail suppliers being able to manage that near-term volatility, that month to month volatility risk of the natural gas market to provide 12 months, sometimes two or three year-long products that helps smooth out some of those bumps on a seasonal basis for consumers.
It’s never perfect, and certainly there are aspects to it that as we look at the standard offer market, the states are looking to further refine. Traditionally, the New England states go out into roughly six month increments, covering winter and summer. There has been some movement to try and either break up the winter months to smooth out that volatility or even examine going out for longer periods of time is available in the retail market.
All this is still a work in progress, but clearly the way that the retail market is set up is it creates alternatives, as it should, for the standard offer market. For now, in this uncertain and more volatile pricing environment, I think there’s a real benefit as long as everybody does their due diligence on what the right product is.”
Q: Thank you. Could you add some insights into the ongoing work on capacity, accreditation specifically in the context of the clean energy transition and how it impacts energy costs and reliability in the region?
A: “So the truism across all markets right now is that it’s an evolving portfolio. As New England in particular is one of the most aggressive regions in the country at meeting our decarbonization requirements and the climate challenge, we’re seeing an exponential growth in clean energy.
The needs that those suppliers have to then balance out on the rest of the system are frankly new ones for the market, that the market hasn’t always been developed to help meet. So there’s a whole suite of different products and services that we’re now building to meet that grid of the future — the needs of the system overall.
One of them is making sure that each different technology, fuel type, and resource, has the reliability value that it provides appropriately reflected in the market. That’s true for resources like wind and solar that are heavily weather-dependent, as it is for natural gas that is subject to delivery constraints, or winter pressures as we start heating with natural gas as well, just as it is for oil that is dependent on its storage capability in the tanks.
So, we are embarking on taking that more granular look at every different technology and fuel to make sure we get that right. Our hope is to complete that process in 2024 and then implement it as quickly as possible. I will say, tying back to an earlier conversation here, the one exception is that imports are not being subjected to that same granular look. Our hope is that we can put that in as well and not create a blind spot on the system overall. But we see the broad arc of this going in the right direction.”
Q: So in conclusion, could you share your thoughts on the long-term outlook for New England in terms of energy solutions and how retail competition might continue to play a role in ensuring affordable and reliable energy for the region’s residents and businesses?
A: “The biggest aspect that is going to be changing over the next several years is the fact that the New England states are going to be deploying a lot of the federal dollars on electrification as aggressively as anywhere else in the country. We’re already starting to see real meaningful growth on things like heat pumps, electric vehicles, and the prospect very soon of moving from a summer peaking market to a winter peaking one.
With that, and as electricity and electrification become a more integral part of our society, there’s going to have to be a bigger role for customers and for the demand side. That’s true both in terms of managing their price exposure, but also their behavior – how they operate, when they choose to charge their vehicles, how they choose to cycle their heat pumps.
That’s where a customer relationship, sophisticated understanding of customer behavior, and the ability to aggregate it across a wide market is going to be so necessary.
I think retail suppliers and the broader retail market are uniquely positioned to bring expertise beyond just a regional utility that tends to have a narrower focus. Suppliers can bring in the best practices from other parts of the country, other parts of the world, and try out different products and services to see what really takes hold and what customers need.”