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New England power prices rise in 2017, demand drops, fuel security concerns remain

New York — Fuel security in the New England power market remained a concern in 2017despite power demand dropping to an 18-year low, according to ISO NE'sinternal market report and market monitor Potomac Economics' 2017 marketassessment.

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New England's reliance on gas-fired power has been a topic of discussionin recent years, and the grid operator released a detailed fuel securityanalysis in January. The top line conclusion was the strong possibilitythat power plants will not be able to get, or will not have to get, thefuel they need to run, particularly in winter. That is the "foremostchallenge to a reliable power grid in New England."

Potomac reached similar conclusions finding that increased reliance ongas has made the power system vulnerable to disruptions in fuel suppliesin recent years.

DIRE COLD-SNAP SCENARIO COULD OCCUR

The IMM conducted a fuel security assessment for a two-week severe winterperiod that found oil and gas demand "will exceed the available supplyunder a severe pipeline contingency in the 2023/24 cold snap scenario."The results suggest that under such conditions, the grid operator "wouldlose its ability to serve the load for an extended timeframe."

Additionally, recent experience during the 2017/18 cold snap showed theISO can have surplus operating reserves in the real-time market even whenthe generator fleet is "running very low on fuel."

Indeed, ISO NE had to "posture" some units in January to conserve fuel,which meant postponing the operation of oil-fired generators and pumpedhydro storage units for later in the day or week, the ISO said at thetime.

"During many recent winters, regional gas utilities have been using most,if not all, of the capacity on the pipelines that carry natural gas intoNew England This leaves very little to no pipeline capacity forelectric generators," according to the grid operator's RegionalElectricity Outlook.

Utilization through the Algonquin Pipeline's Stony Point Compressor, akey constraint point just north of the New York border, averaged 95% inwinter 2015-16; 92% in winter 2016-17; and 92% in winter 2017-18,according to S&P Global Platts Analytics.

Over the decade from 2010 to 2020, 4 GW of oil- and coal-fired capacityhas retired or will retire and the remaining oil and coal capacity willbe economically challenged by falling capacity prices, the phase-in ofpay for performance, which started in June, and state-subsidizedresources entering the market, the IMM said.

As a result, market design changes may be needed to "ensure thatgenerators have incentives to conserve limited fuel supplies and allowmarket prices to efficiently reflect these fuel limitations," the IMMsaid. HIGHER GAS PRICES DROVE UP POWER PRICES

Energy prices rose 12% to 17% from 2016 to 2017 as gas prices increasedby 19%, averaging $3.72/MMBtu, a 61-cent increase from 2016.

"This correlation is consistent with our findings that the marketperformed competitively because energy offers in competitive electricitymarkets should track input costs," Potomac said in its report that waspresented at the New England Power Pool Participants Committee 2018Summer Meeting.

Lower power demand, which was down 2% or 341 MW/hour, particularly in thethird quarter of 2017 when it was down 8% or by 1,280 MW/hour, helpedoffset the impact of higher gas prices, ISO NE said.

While average load fell 2% from 2016 to 2017, peak load fell 7%, Potomacsaid, which reflected mild weather during most of the year, an increasein energy efficiency programs and strong growth in behind-the-meter solargeneration.

MARKET POWER IDENTIFIED IN REAL-TIME MARKETS

The IMM found that ISO NE's markets performed competitively in 2017, butmarket power concerns remain in Boston and market-wide under high-loadconditions. However, little evidence of "significant market power abusesor manipulation in 2017" were identified. The Boston market powerconcerns will be "further alleviated with the completion of the GreaterBoston Reliability Project and when the Footprint Power combined-cyclegas-fired power plant comes into service," Potomac said.

The reliability project is a transmission line expansion and FootprintPower is a 674-MW gas-fired power plant being built in Salem,Massachusetts.

ISO NE noted the real-time market has "frequent structural market power"and the top four firms had 48% of real-time generation, "with shares nothighly concentrated in any one firm." Similarly, four firms had 52% ofreal-time consumption, with shares not highly concentrated in any onefirm. --Jared Anderson, jared.anderson@spglobal.com

--Edited by Jeffrey Ryser, newsdesk@spglobal.com