Why electricity prices are rising unevenly across New England

It’s not just you. Your neighbors, your friends across town, even local political leaders — everyone who gets their electricity from the power lines that run down the streets is seeing rates rise. (People with solar panels on their roof, or who are part of a municipal aggregation or “community power” program, are a different story.)

The primary reason for the spike is our reliance on fossil fuels. Specifically, natural gas.

Natural gas accounts for about 38% of the country’s electricity, though here in New England, it’s more like 53%. And the price of our main source of energy is anything but stable.

Gas prices are extremely volatile

Historically, New England burned oil and coal for power, but we switched many of our plants over to natural gas after the “fracking boom” in the early 2000s. Supply was high and prices were cheap, which was good for consumers, but not sustainable, said Dennis Wamsted, an analyst at the Institute for Energy Economics and Financial Analysis.

Indeed, prices started to rise after the U.S. began turning its glut of natural gas into liquefied natural gas (LNG) and exporting it.

The COVID pandemic in 2020 temporarily disrupted this trend; the global economy came to a halt and many oil and gas operations curtailed production. But as demand for fossil fuels began to rebound in 2021, supplies haven’t recovered as quickly. This has meant steadily rising prices. Add in some record-setting cold temperatures in many parts of the country this past winter, and prices have gone up even more.

“And then Russia invaded Ukraine and the world changed,” said Dan Dolan, president of the New England Power Generators Association. “We are now facing the largest international energy crisis of my lifetime. [We’re] seeing enormous volatility across all the energy commodities, and in particular, natural gas and oil.”

Russia is the second-largest producer and the largest exporter of natural gas in the world, and its invasion of Ukraine in late February sent global energy prices into a frenzy. In fact, natural gas experienced its biggest 30-day price swing of the last two decades after the war began.

Getting enough gas is expensive in New England

There’s another important factor that helps explain why New England pays a lot for natural gas. We simply have a hard time getting it. We don’t sit on top of any fossil fuel reserves and we are at the end of the gas pipeline system, which means we can’t easily bring in more when demand calls for it.

“We just have a physical constraint of how much gas we can deliver through the pipeline system to New England,” said Ben Butterworth, director of climate, energy & equity analysis at the Acadia Center.

And when demand rises, so do prices.

To help make up the shortfall, New England imports liquified natural gas from other parts of the country to use for electricity — over the last decade, we’ve brought in between 20-43 billion cubic feet of LNG per year. Big tankers offload the gas in Everett, Massachusetts, where much of it is burned in the nearby Mystic Generating Station or stored for later use.

In most years, we meet our needs with this extra LNG and some oil. But this winter will be tougher because the price of LNG has skyrocketed over the last few months as U.S. suppliers scramble to help gas-starved European countries.

Overall, since the war in Ukraine began, oil and gas prices have fallen back a bit, but analysts say we shouldn’t expect prices to really drop off anytime this year.

“As we go through this winter, we are expecting to see high volatility, high historical prices for electricity,” Dolan said. “I remain cautiously optimistic that we’re going to be okay from a reliability standpoint, but the fuel supply infrastructure is tight.”

Why electricity prices differ across New England

Let’s start with a look at your electric bill.

You’ll see that there are a lot of charges that go into what you pay: Energy charges, customer charges and transmission charges, to name a few. All of those line items can be lumped into one of two categories: supply or delivery.

Today’s focus is on the “supply charge.” This is the cost of the actual electricity you used in the last month. It tends to be about half of your monthly bill and it’s what has been rising in odd and unequal ways across the region.

For example, in September 2022, the supply charge for a Unitil customer in one part of New Hampshire is 10.11 cents per kilowatt hour, while an Eversource customer living a few miles away is paying 22.57 cents.

The variation, to be clear, is not just about which utility you have. A different Eversource customer just across the border in Massachusetts is paying 17.87 cents per kilowatt-hour, while a third in Connecticut is paying 12.05.

As a bit of background, the six New England states are part of the same regional electricity grid, which means that an electron produced by a power plant in Connecticut could theoretically travel through the wires and end up helping to illuminate a light bulb in New Hampshire.

But while the electrons flow freely, it’s the utilities — whether investor-owned or municipally-run — that act as the all-important middleman. They procure electricity from power generators and energy wholesalers on your behalf and make sure it gets to your house.

In most New England states, utilities change the supply rate twice a year after holding competitive auctions. Their experts calculate how much power they think their customers will need over the next six-month period and go about signing contracts for it from various suppliers.

The results of this procurement directly affect the monthly supply rate you pay, since utilities do not make a profit on the electricity they provide you. (They make money on other things they do.)

The prices utilities can get varies across states and regions for a few reasons.

The first has to do with the fact that it’s cheaper to buy power for certain areas than others. The prices utilities can get often depend on the number of customers they serve in a given territory and how challenging it is to meet demand. This helps explain why, for example, Eversource customers in eastern Massachusetts always pay slightly higher supply rates than in western Massachusetts.

The second, and perhaps most important factor, is timing. If your utility held its auction before the war in Ukraine started and gas prices jumped, you’re probably seeing cheaper electricity than your cousin whose utility negotiated its prices this spring.

The third reason has to do with state policies about utility auctions. Some states, like Massachusetts and Connecticut, require utilities to hold extra auctions or “blend” the prices from earlier cycles to help insulate customers from big market spikes.

To give a concrete example of how this plays out, consider Eversource customers in New Hampshire and Massachusetts. In New Hampshire, the utilities do one auction per cycle, and because Eversource’s auction took place after the Russian invasion, its customers are seeing a huge jump in supply rates. In Massachusetts, the supply rate on customers’ bills reflects a combination of the two auctions — in this case, one from this spring and one from last spring. Because prices were lower last year, the overall supply rate is lower right now.

Doing it each way has its tradeoffs. Massachusetts customers have a buffer now, but if the price of natural gas falls dramatically in the future, New Hampshire customers will see that reflected in their bills sooner.

In other words, said Dolan, “it’s the timing of those retail auctions that really, really matters.”

How much longer will we pay these higher prices?

For many, it’s going to be a tough winter.

As New England residents prepare to pay higher electric bills during the coldest months, some states have rolled out new efforts to help.

In New Hampshire, where some ratepayers could see more than a $70 monthly increase, lawmakers are expected to vote on a plan later this month that would give out $100 to almost everyone who pays an electricity bill. That will help with about a quarter of the extra costs an average Eversource customer can expect for the rest of the year. The plan also dedicates additional funding to utility assistance programs serving lower-income residents, like LIHEAP and the Electric Assistance Program.

In Rhode Island, state officials have proposed more funding for an electric assistance program to mitigate price hikes slated for October. And in Massachusetts, the Attorney General’s Office is spreading the word about programs to help residents pay for energy efficiency upgrades.

Meanwhile in Connecticut, some towns offer extra financial assistance for residents struggling to pay their bills. But according to Brenda Watson, executive director of Operation Fuel, it’s often not enough. Her group helps people struggling with utility bills, and she said that by late August, they had received far more applications for assistance than usual.

“It’s really quite astonishing,” Watson said. “We haven’t even seen this many people apply during peak COVID times.”

What about renewables?

This year’s price fluctuations have exposed the volatility of fossil fuels, but many experts say things could be different in the future as we “electrify everything” and source more of our power from renewables.

Most New England states are taking action to increase the amount of renewable energy on our regional grid — Massachusetts and Connecticut are signing big contracts for offshore wind. Maine is looking to solar and onshore wind, while developing targets for offshore wind. Rhode Island is requiring utilities to get all of their energy directly from renewables, or use offsets to reach this goal, by 2033. And Vermont aims to get 90% of its power from renewables by 2050.

Ratepayers can expect that shift to drive down the cost of electricity in the long-run, said Butterworth of the Acadia Center.

In a study about how to dramatically cut carbon emissions, for example, Massachusetts found that under certain conditions, ratepayers could see a 13% decrease in electric rates by 2050.

But though the groundwork is being laid for a major energy transition, the power isn’t flowing yet. And finding ways to spread the coming benefits equitably will be more complicated than just building turbines in the ocean and erecting more solar panels.

Right now, the people seeing the savings from renewables tend to be those who can afford to invest in solar panels and energy efficiency, or who participate in certain community aggregation programs. So in the short term, investing in state and utility programs that help lower-income residents make their homes more energy efficient, or make it more affordable to put up solar panels, would be really helpful, said Mireille Bejjani, co-executive director of Slingshot, an environmental justice organization based in New England.

In the medium-term, things get a little more complicated. “We’re going to have to build a lot of stuff,” said Butterworth. “And building stuff is expensive.”

Offshore wind turbines, solar farms, power lines – all are costly.

It’s time to start thinking “outside of the box,” he said. Right now, ratepayers pay for transmission line upgrades and some renewable energy projects in their electric bills — these are part of the delivery charge. But Butterworth said, what if we paid for that with taxpayer money instead of ratepayer money so that the wealthy shoulder a bigger burden? Or what if we spread the costs that utilities recoup for these projects over many decades so that the amount ratepayers contribute every month is lower?

“Eventually as we transition to renewables, it’s going to lower costs. It’s just a matter of what kind of time frame you’re looking at and how you’re allocating electricity rates,” he said. “It’s not like a law of physics. It’s a policy decision.”

Vermont Public Radio’s Abagael Giles, Maine Public Radio’s Murray Carpenter and Connecticut Public Radio’s Patrick Skahill also contributed to this reporting.

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On Vermont:

Five of the New England states have “deregulated” energy markets, meaning power generation is separate from power distribution. But in Vermont, utilities can own power plants or solar farms and sell their customers the electricity they produce.

Additionally, Vermont utilities meet the vast majority of their electricity needs through long-term contracts, like those with Hydro-Québec. These factors make comparing price changes in Vermont to the other states a bit of an apples to oranges situation.

That said, Vermont still gets about 10% of its power from the regional grid, and in part due to that, ratepayers in Vermont can expect to see their rates go up somewhat in the coming months – though likely not as much as in other New England states.

–Abagael Giles, Vermont Public