Government sometimes
promises consumers that by paying higher prices now, they will pay lower prices
later.
The
government gets into the market, but leaves all the risk to customers. It’s happening again, and this time the
market involved is New England.
The six New
England states have agreed to ask federal regulators to allow the cost of new
natural gas pipelines to be included in electric rates.
The region’s
power suppliers are increasingly using natural gas to replace imported oil and
domestic coal. It beats the traditional
fuels on price and environmental impact.
But natural
gas has been in tight supply at times, driving up its price, because of too few
pipelines to bring the fuel from outside the region. And the market has not yet spurred private
investment in new pipeline construction.
So government
would step in and require electric customers to pay subsidies to the natural
gas pipelines. Then, the theory goes,
natural gas will be readily available at lower costs, thanks to the removal of
the supply bottleneck.
Perhaps,
though unregulated natural gas suppliers might not sell cheap, but could go for
as much as they can get from customers who had become heavily dependent on them.
In the
electric business, the promise of “pay me now and you’ll get lower rates later”
has been made before, but it has not been kept.
In 1978,
faced with a slowdown in Middle East oil supplies, a federal law decreed that
states should use renewables if they could be purchased at the same price as forecast
for other sources. Maine regulators
guessed at high future oil costs and required the introduction of costly
renewables.
In the end,
the renewables cost too much, and plants were shut down. Customers got to pay for the “stranded costs”
of the shuttered plants, essentially getting nothing for their money.
In 1992, a
new federal law required the transmission grid to carry power for generators, which
were to be managed independently of the wires companies. The idea was that competition among
generators would bring prices down.
That was a
good idea, but federal regulators could not leave it alone. Without being
required to do so, they set up markets.
Under their system, New England customers are charged the cost of the most
expensive supply even if their power comes from cheaper units.
The old
system had charged customers different prices for various units, depending on
their cost of fuel. The new system, with
its uniform high price, denied customers the benefits of competition. Prices did not fall.
New England
has among the highest electric rates in the country, hardly conducive to
attracting business. Maine, the poorest
state in the region, may suffer the most.
Public policy
keeps finding ways of raising rates. The
offshore wind project recently approved by the Maine Public Utilities
Commission will add to rates. The new
pipeline proposal would do the same.
There’s still
some hope for customers. The proposal
may not be legal. There’s a real
question if federal electricity regulators have the authority to include the
costs of natural gas pipelines in electric rates.
But here’s
more bad news for customers. New
England, having made hydro development almost impossible in the region, longs
to buy “cheap” hydro power from Canada.
Why would
Canada sell to New England at a price below the market?
A recent
long-term deal between two Canadian provinces sets the selling price of hydro
at the New England market price of power as it floats in the future. If they use the New England price for
Canadian sales, why wouldn’t they do the same for New England sales?
Politicians
keep looking at Hydro Quebec, where rates seem to be lower. And that utility
has a long-term deal with Vermont utilities that looks pretty good.
Provincial
rates are political rates in some Canadian provinces, so it’s unlikely they
would treat New Englanders the same way they treat their own customers. After all, Hydro Quebec is owned by the
Quebec government.
As for
long-term deals at contract prices, buyers never know how the deal will look
years after it was made. One Canadian
province has been litigating unsuccessfully for decades with Hydro Quebec over pricing
in a long-term deal.
If New
England were to tap those Canadian imports, new transmission lines would have
to be built, paid for by customers.
There are lessons
here. When markets don’t produce
desirable results, government probably can’t fix the problem by fiddling with
the market. And when government electric
policy fails, the customer gets the bill.