Guest Post: Hallquist on Wind and the Grid

David Hallquist is the Chief Executive Officer of the Vermont Electric Cooperative (VEC).  Like most co-operatives, VEC is owned by its rate-payers.

Once upon a time, VEC was the third-largest utility in Vermont.

But then the two largest utilities, Green Mountain Power and Central Vermont Public Service, merged.  The new utility (Green Mountain Power) is a wholly-owned subsidiary of Gaz Metro of Quebec.  So now VEC is the second-largest utility in Vermont.

This afternoon, David Hallquist sent me an email including some VEC talking points.  I asked if I could use them as a guest post on my blog. He graciously agreed.

But first, a few words about VEC.  VEC takes its responsibilities quite seriously, including:

• The requirement to use intermittent renewable power
• The requirement to provide reliable, reasonably-priced power to its owner/ratepayers.

A recent VEC blog post Adoption of Renewable Energy Requires Realistic Timeline, shows the utility's thoughtful approach.  Late last year, the VEC Board of Directors asked the legislature to put a hold on requiring new renewable mandates in the state.

This afternoon, Hallquist sent me two documents that were very interesting.  One I already had: Matt Wald of the New York Times on the soaring prices of natural gas In New England: A Natural Gas Trap.  Hallquist also sent me the talking points below, which expand on the Wald article and look further toward the future.

These talking points are the way VEC sees the grid situation, right now.

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Concerns about the Effect of Natural Gas prices on Electric Rates

Vermont Electric Cooperative’s power supply portfolio is designed to provide stability and predictability of short and long-term power supply costs. VEC keeps a small portion of the portfolio open so that some power can be purchased on the open market.  Recent unexpected and prolonged high price levels in the wholesale energy markets has caused concern that underlying issues may cause future market volatility that could ultimately have a negative impact on consumer electric rates.

Wholesale electricity prices skyrocketed in mid-January through the end of February:

• Prices are normally around $36/megawatt-hour ,
• Prices spiked at about  $1000/megawatt-hour, and 
• Prices hovered much of the time around $200/megawatt-hour.  

This made sense in late-January as the Northeast was experiencing its worst cold snap since 2009.  What did not make sense is that the prices did not come back down when the weather moderated.  The prices finally came back down on February 24.

Natural gas prices drive wholesale electricity prices:

• Natural gas prices in New England in mid-February were five times the prices in early January.

Natural gas prices have been high due to an increase in demand, at a time when New England’s supply is constrained:

• New England has become more dependent on natural gas for its energy supply in the transportation, heating and electricity generation sectors.
• Winter Storm Nemo caused a key nuclear generator, along with other smaller electricity generators, to go off- line, causing an even greater demand for natural gas.
• Transmission infrastructure to New England spans a very long supply line starting in the Gulf of Mexico and is not adequate for current regional demand.
• By contrast, in neighboring New York where transmission is less constrained, natural gas prices remained low in early 2013.

Natural gas and wholesale electricity prices have returned to normal levels, but future volatility is expected:

• While the problem has gone away for the short term, this issue needs to be addressed as we continue to move to more and more natural gas as an energy source.
• New England has traditionally seen some volatile price spikes, but this last event shows we are in a critical situation.  
• According to ISO-NE, “the fuel supply uncertainty is escalating rapidly and is unsustainable.”

Further exacerbating the problem are the ISO operating procedures that are curtailing the production of lower cost, intermittent renewable energy generators:

• Several times during these past few weeks, the Kingdom Community Wind project was capable of full production, yet the ISO-NE was only allowing 1/6 of the output.  
• At one point, ISO-NE shut down Kingdom Community Wind to allow the oil peaking unit in Swanton to be run.
• Wind curtailment is an issue across the country, and needs a national focus on ISO rules about how intermittent resources (wind and solar) are handled.  

For more information, please contact:

Dave Hallquist, CEO
dhallquist@vermontelectric.coop
1.802.730.1138

or

Randy Pratt, Manager of Programs and Policy
rpratt@vermontelectric.coop
1.802.730.1108