Feds investigating New York’s winter electricity price surge

 

Investigators from the Federal Energy Regulatory Commission are looking into New York’s winter electricity price surge, Sen. Charles Schumer said today as he urged another agency, the Federal Trade Commission, to also start a probe.

Schumer said he wasn’t sure of the nature of the FERC investigation. “They don’t say much other than that they are looking,” the senator said at a news conference.

“They obviously smell something going on. Who knows what?” he added.

In the utility world, asking for a FERC investigation is the equivalent of calling the cops to report a possible crime. Nobody is really sure that anything illegal or untoward happened in the energy markets over the winter, but people in the utility business want FERC to make sure.

When prices surged in February, state Public Service Commission chairwoman Audrey Zibelman wrote to FERC asking for a probe of high natural gas prices. In New York, most electricity is generated with natural gas, so the price of natural gas is an important factor in residential electric bills.

Zibelman’s letter specifically suggested FERC compare what gas pipeline owners had contracted to deliver to their customers with the amount of gas they actually delivered. Such a comparison “would indicate whether any market power concerns exist,” she wrote. In plainer English, Zibelman was worried about the possibility someone was manipulating gas prices.

The New York Independent System Operator — which operates the power grid — asked for a FERC investigation of natural gas prices on the same day as Zibelman.

Schumer says the electric price increases have outpaced natural gas prices. He also noted that though electricity prices rose quickly, they are not falling as fast as they should now that the gas shortage is over. “We are asking that the FTC look at the second half of the chain, from the supplier to the consumer,” he said.

A news release from Schumer’s office says the FTC should be involved because “there are multiple ways utilities or natural gas providers could artificially inflate electric bills, including withholding natural gas from the market or overcharging ratepayers.”

There was no shortage of natural gas last winter — but there is a shortage of pipelines delivering gas to the northeast US. Because there was no way to get enough gas to market, prices rose. But the impact across New York seemed to vary by geography and by utility company.

Con Edison’s rates spiked by 20 to 25 percent, Schumer reported last month. Con Edison customers actually caught a break compared to customers of utility companies elsewhere, Schumer’s data shows: PSEG customers on Long Island saw their bills rise by 25 percent, and Central Hudson customers saw their bills rise by 35 percent. National Grid’s upstate electric customers got walloped, with increases of 60 to 75 percent.

Schumer’s numbers seem very rough — and they don’t show whether people who buy electricity from energy service companies rather than through utility companies’ default plans have paid more or less.

I’ll post a link to the news release about Schumer’s request as soon as it’s available.

Whether or not there was any price collusion, the shortage of natural gas pipelines remains a problem and could cause another power price surge next year. My earlier posts on this topic are here and here.

Don’t be quick to blame Con Edison for this problem — it passes on electricity generating costs to customers on its default plan without markup. Here’s a statement Con Ed issued about Schumer’s news conference:

We support the Senator’s efforts to examine this past winter’s high energy prices.  We and other utilities had asked the Federal Energy Regulatory Commission look into market performance, particularly as natural gas pricing impacts electricity costs, and there is an ongoing FERC proceeding to look into this issue.  The brutal winter’s high energy demands and resulting high costs impacted consumers all across the Northeast this year.

Update, April 17: National Grid’s prices are reportedly easing in the Albany region.

About Bill Sanderson

I'm a New York-based journalist, and a former reporter at the Concord Monitor in New Hampshire, the Bergen Record in New Jersey, and the New York Post. My work has appeared in The Wall Street Journal, MarketWatch.com and Politico New York. Twitter: @wpsanderson.
This entry was posted in Con Ed, electricity, Federal Energy Regulatory Commission, natural gas, Public Service Commission. Bookmark the permalink.

One thought on “Feds investigating New York’s winter electricity price surge

  1. Bruce Radford says:

    While I admit they’re might be some bad actors behind this, I suspect that it’s really just the result of a perfect storm of multiple adverse circumstances all occurring at the same time:

    1. The Shale Gas (fracking) Revolution. The huge influx of new gas supply from shale formations has driven the long-term wholesale price of nat gas down to historically low levels. (But temporary upward price spikes for nat gas in certain localized areas can still occur, and in fact are made even more severe, as described below.)

    2. The Dash to Gas. With long-term nat gas prices so low, power plant developers (both utilities and private firms) have put all their eggs in one basket — they are abandoning coal-fired power plants, and turning to power plants fueled by nat gas (both simple-cycle and combined-cycle plants). The proportion of our electricity in the Northeast that is generated from nat gas is rising dramatically. With nat gas prices so low (at least on average in the long term), and with so much controversy over using coal to generate electricity (climate change, mercury, etc.) you’d have to be crazy to want to build a coal-fired power plant. Everyone today wants to build power plants fueled by nat gas.

    3. Just-in-Time Fuel Deliveries. If you have a power plant run by natural gas, you can’t store your fuel on site. You don’t have a month’s worth of fuel sitting next to the turbine, like you do with a coal-fired power plant, where you have a big pile of coal sitting next to the boiler that was delivered by train and hopper cars. What this means is that, when you run your natural gas power plant on a Monday to generate electricity, the nat gas fuel that you are using is fuel that is being delivered to you on that same Monday, via interstate pipeline. You are relying on “just-in-time” fuel delivery. If the slightest thing goes wrong, your fuel deliveries will be interrupted, and your power plant will go off -line, because you have no backup fuel.

    4. Fierce Competition Among Power Plant Owners Leads Plants to Cut Corners. In the USA today, especially in the Northeast, the business of owning power plants and generating electricity is a competitive business, and it’s very cutthroat. Power plant owners have to cut costs any way they can. One of the ways that owners of power plants fueled by nat gas have chosen to cut corners is to purchase what is known as “Interruptible” pipeline transportation delivery service, known as “IT.” The plant owner does not reserve capacity in advance on the pipeline. Rather, the plant owner acts very much like a standby air traveler. The plant owner buys IT only. IT service is cheaper. But IT means that if anyone else has a firm pipeline reservation, that reservation takes precedence. That means that, in order for the plant owner to get rights to scarce pipeline delivery capacity, in order to get nat gas fuel delivered to the power plant, the plant owner who has bought only IT service must depend on other customers cancelling their pipeline delivery contracts, in order to free up new capacity on the pipeline. But if nobody cancels, the plant owner with IT service only is out of luck. There’s no space on the pipeline to deliver gas fuel to that plant owner.

    5. Not a Shortage of Gas, per se, but a Shortage of Delivery Capacity. In one sense, the USA is awash in natural gas. But the key is, can you get it delivered to you when you need it? In the Northeast US, there is a shortage of nat gas pipeline infrastructure. In theory, there’s gas available for power generation. But in practice, if you are in the Northeast, you often can’t find empty space on a pipeline to allow that gas to be delivered to you.

    6. Competition Between Gas-fired Power Plants and Consumers Using Nat Gas for Heating. During the winter, when cold weather hits, consumers with nat gas furnaces burn much more nat gas to heat their homes. This gas ALSO is delivered “just-in-time” by the local nat gas utility company. That means that, when cold weather hits, the local gas utility will be competing against owners of power plants fueled by nat gas for the right to get access to that scarcity of empty space on interstate pipelines that might be available to use for nat gas deliveries.

    7. Gas-Fired generators are Last in Delivery Priority. There is a ranking of priorities for various types of users to get access to scarce pipeline capacity. Local gas utilities that are delivering gas go consumers for heating homes have a much higher priority to use pipeline capacity than do the power plant owners who use gas to generate electricity. So if pipeline capacity runs short, it’s that power plant owners who must go without gas supplies.

    8. The Result — Huge Price Spikes When Cold Weather Hits. The result of all these different factors — when cold weather hits, and space on pipelines gets very scarce, owners of power plants fueled by nat gas either can’t get the gas they need to run and generate electricity, creating electricity shortages, which drive up power prices, or else the plant owners have to pay through the nose for their gas, causing costs to spike, and thus power prices to spike.

    The short answer? Yes, the shale gas revolution is a wonder, but it has led us to putting all our eggs in one basket, creating a huge dependence on “just-in-time” deliveries of nat gas supplies via pipelines — something that the nation’s pipeline infrastructure (or at least the Northeast infrastructure) is unable to guarantee. The result is electricity shortages, which drives up price.

    There’s really nothing here that “smells,” except, perhaps, the methane.

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