Residential electricity in and around Boston this winter will cost as much as 35 percent more than it did last winter. Several factors are driving that spike, but the common denominator is the cost of natural gas.
When utilities like National Grid bill residential customers for electricity, it’s really just a pass-through: They contract for the cheapest power they can find on the regional market and then pass that cost to residents at no profit. The utility makes its money through charges for providing the poles and wires that deliver the electricity to end-users.
So don’t blame your utility for electricity price spikes in the range of 30 to 40 percent this winter. Blame the market. And don’t worry, overall bills won’t rise quite as sharply as that, because delivery charges are staying relatively level.
“A typical monthly bill would increase from about $74.38 to about $88, or about $13.80 a month," said Deborah Drew, a spokeswoman for National Grid.
The numbers are driven by the cost of natural gas, and the cost of getting it to New England, where natural gas fuels some 50 percent of the electricity being generated.
"This is the over-reliance on natural gas in New England," said Shaun Pandit, CEO of Early Bird Power, a Milton-based company that helps commercial customers reduce energy costs.
Pandit and others say there are several keys to understanding why electricity prices are rising this winter when compared to last.
First, domestic natural gas production is slowing after the five-year fracking boom, and so the relatively cheap fuel is growing more expensive. Second, Pandit says, New England's natural gas supply lines are at times inadequate to meet demand.
“The commodity itself is very cheap, but there’s limited transportation to bring it up to New England," he said. "And New England, being so reliant on natural gas for electricity generation, so when there’s a problem, there’s really not an alternative."
Last winter, there was a problem.
"We saw numerous generators basically call into the office sick," said Anne George, spokeswoman for ISO New England, which administers the electricity grid for all of New England and is responsible for ensuring its reliability.
George said that during a January cold snap last year, and then the February blizzard, demand for natural gas in Massachusetts and the rest of New England shot up. Some power plants just couldn't get enough natural gas.
"We got fairly close to the edge in terms of being able to reliably serve the demand for electricity in the region," she said.
ISO has created some incentives to protect against that this winter. That includes bonuses for electricity power plants that can switch from natural gas to oil to keep robust supplies of oil on hand in case of another natural gas bottleneck.
But that brings up another issue that Pandit says is playing a role in pricier contracts for electricity: Oil is a more expensive fuel, and the market may be pricing electricity higher to hedge against a cold winter — and scarce natural gas supplies — in New England.
This program aired on November 8, 2013.