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ISO New England warns region faces 'tough decisions' over constrained gas supply

New England's grid operator warned in its annual report on trends and challenges that the region's policymakers are facing "tough choices" to keep the lights on as a result of constrained natural gas supplies.

ISO New England's 2018 Regional Electricity Outlook released Feb. 14 predicted that in the years ahead, overcoming fuel security risks to the region's power grid will be at least as difficult as it has been at any time over the past 20 years.

Topping the grid operator's worries as "the biggest challenge to the reliability of the grid" is the lack of fuel infrastructure to supply the fleet of natural gas-fired power plants, further emission restrictions on oil-fired generators, and the reality that older oil and nuclear plants are becoming less competitive and may retire before the region has added enough new energy sources to replace them. The report follows a recent study by the ISO-NE that quantified the future risk of fuel security.

ISO-NE President and CEO Gordon van Welie and board Chairman Philip Shapiro said the grid operator might turn to the Federal Energy Regulatory Commission to help the region with its growing dependency on natural gas supplies that become constrained during the coldest days of winter.

"To help mitigate the fuel-security risks, we have the ability to seek authority from the FERC to further improve the market's pricing of fuel constraints, strengthen the financial incentives for power plants to secure more reliable wintertime fuel arrangements and, if necessary, retain resources essential to ensure grid reliability," van Welie and Shapiro said in a joint statement.

"While these actions will improve market incentives and appropriately raise prices under scarcity conditions, they are only the stimulus to resolve the fundamental causes of the fuel-delivery constraints," they said. "It will be up to market participants and state officials to take actions to secure forward fuel arrangements or bolster supply- or demand-side infrastructure."

The ISO-NE officials said appropriate investments could include enhancing natural gas infrastructure or the supply chains for liquefied natural gas and oil and relaxing rules to allow easier permitting and operation of dual-fuel resources. Other options include investments aimed at increasing renewable energy and the transmission needed to facilitate those intermittent resources and measures to significantly reduce demand on the power and gas systems. "Most likely, the solution for New England will be some combination of these," the grid operator said.

The grid operator said resolving the region's fuel-security risks will require costly infrastructure investments and possibly the retention of certain critical energy resources. It warned that inaction comes at the cost of higher energy bills when energy supplies are constrained, potentially higher emissions and a greater chance of blackouts.

Industry representatives, state officials and policymakers will have a vital role to play as New England determines what course of action to take to ensure grid reliability, competitive wholesale electricity prices and a transition to a cleaner, "greener" grid, ISO-NE added.

"Fuel security will not be an easy problem to solve," van Welie and Shapiro said. "As a result, in 2018, we expect stakeholder discussions to intensify as we dig into this challenge and identify possible solutions."