The announcement last week that Rhode Island should see substantially lower electricity rates over the next few years came with several caveats.
A study released Sept. 10 by the region’s grid operator, ISO New England, paints a rosy picture for the electricity supply in Rhode Island and southeastern Massachusetts. Not only is there ample generation capacity here – which makes power interruptions less likely – but prices at the wholesale level could fall as much as 40 percent over the next two years.
“The bottom line is we can see price decreases coming,” said Sen. Jack Reed, D-RI, who last spring requested the study to gauge the effects of higher natural gas prices on the wholesale electricity market.
“This is good news especially for our manufacturing sector, because they are buffeted not only by high energy costs but also by a strong dollar overseas and many other factors,” Reed said at a press conference at the Osram-Sylvania facility in Central Falls.
But a continued drop in natural gas costs will be a big key to future electricity decreases, because it is the “fuel of choice” for generation plants in New England. Virtually all of the new power plants recently built or planned in Rhode Island are gas-fired.
At the time Reed proposed the study in April, Narragansett Electric’s Standard Offer rate – the rate charged for power generation – had ratcheted up five times since the previous June because of soaring fuel costs.
Natural gas prices since then have plummeted as much as 70 percent, prompting Narragansett Electric last month to reduce its Standard Offer rate by 8.1 percent, effective Oct. 1.
While energy officials concede that natural gas prices are volatile by nature, they said prices should trend lower over the next five years.
“Both nationally and regionally, we should see stabilization and a drop in natural gas prices,” said Stephen G. Whitley, senior vice president and chief operating officer of ISO New England. He said the potential 40 percent decline in Rhode Island’s wholesale electricity rates hinges largely on that projection.
Implementation of a new location-based pricing structure that ISO New England is pressing federal regulators to approve is another important factor. The pricing scheme – which ISO New England would like to put in place by 2003 – would use spot-market prices calculated based on location.
Under that system, areas with excess generating capacity such as Rhode Island should see lower prices because they would no longer bear the cost of transmission congestion in deficient areas like southwestern Connecticut and Boston. The cost of bottlenecks in the region’s grid – which total between $150 million and $600 million annually – now are spread equally across all New England residents and businesses.
The Federal Energy Regulatory Commission must approve the new market structure before ISO New England can begin that transition.
ISO New England also is developing a transmission-expansion plan to be able to more easily move electricity out of surplus areas such as Rhode Island and Maine. As transmission upgrades are put in place, wholesale electricity prices in those areas should come down because of increased competition.
Steve Sander, plant manager at Osram-Sylvania, called the report’s findings “some of the best news I’ve heard in the (manufacturing) industry in a long time.”
Sander said the plant’s energy costs have spiked 25 percent over the past fiscal year. He added that electricity expenses account for 6 percent of the plant’s total costs, which can mean the difference between a profit and a loss, he said.
