There is much being made of an evolving state energy plan. While we support encouragement for energy conservation as we encourage it with our customers every day, we do not support government making choices for consumers or picking winners and losers.
There are ten pillars of economic wisdom and Number 6 is – Every action has unintended consequences. This is especially true in dynamic energy markets where change is constant and where government has a particularly poor track record where it chooses the flavor of the month. Remember in the 50s and 60s we were told electricity was to be “too cheap to meter,” and that led to the all-electric home? That decision turned out badly, especially in a state with the fourth highest electric rates in the nation.
In 2005 the natural gas industry managed to convince Congress to grant exemptions to several important environmental protection laws, among which are the federal Safe Drinking Water Act, the Clean Air Act, and the Clean Water Act. Without the restraint of federal laws protecting the environment, there has been a dramatic increase in the production of natural gas since 2008 from shale, and that new production has driven natural gas prices down significantly – but not without consequences.
The consequences of all this new natural gas being drilled is that the boom in horizontal drilling and hydraulic fracturing that gave access to enormous gas-rich shale formations around the nation has led to record production. With record production, prices crashed. As prices have crashed, drilling activity has collapsed: Natural gas drilling rig counts, down 45% from last year, have hit the lowest level since July 1999.
In early January, while gas traded for around $3/MMBtu at the Henry Hub, New York experienced a spike and paid nearly $12/MMBtu! In March, as natural gas was drifting towards its decade low at the Henry Hub, Boston briefly paid nearly $9/MMBtu. Natural gas got massacred in one place and spiked in another!
Four years ago, there was a proposal to build a liquefied natural gas import facility in the middle of Long Island Sound. With natural gas prices over $8 mmbtus, someone figured they could take natural gas from Algeria, cool it to a liquid and put it on a boat and dock it in Long Island sound and earn a return. Now, with natural gas prices under $3 just four years later, the discussion in the energy industry is not about IMPORTING natural gas, but instead EXPORTING natural gas. With natural gas prices over $14 mmbtus in Europe and approaching $18 mmbtus in Asia, shipping all this “cheap” natural gas here in the U.S. to foreign markets makes sense for gas producers. Meeting that foreign demand will, inevitably, cause U.S. natural gas prices to rise as well.
Even with the multi-billion merger of Connecticut utilities with NStar in Massachusetts, we hear discussion of the State of Connecticut putting “incentives” in play for the multi-billion dollar utilities for this highly dubious energy play in natural gas. So the state that is broke, just raised $2 billion in new and higher taxes and still gas a budget deficit looming ahead, is actually planning yet another economic development boondoggle by giving away our tax money to multi-billion dollar utilities? Worse yet, the state that has the highest per-capita state debt from borrowing is thinking of borrowing more on our children’s future for multi-billion dollar utilities? They can’t be serious – or are they? Haven’t we all had enough of government bailing out businesses?
In early August this year the opening paragraph of a Hartford Business Journal article entitled “Booming demand for natural gas pushes up prices,” said it best, “The commodity price of natural gas leaped more than 70 percent this summer, firing a warning shot throughout the region that New England — and Connecticut, in particular — is over-relying on one fuel source.” [natural gas] The 2007 state energy plan intelligently pointed out that a dynamic, privately-held and privately funded oil and natural gas industry competing against each other kept both in check for both prices and services to consumers. Now, apparently, the state wants to put its thumb on the scale of success or failure of Connecticut businesses. This is wrong.
A heating system is a twenty-year investment, not one to be taken lightly or for a short-term savings. When oil had a twenty-year advantage and saved consumers money, switching to another fuel needs to have a more sound basis than just this month or this year’s estimate of savings out fifteen or twenty years.
On September 5th, federal regulators weighed in on the issue of the growing reliance on natural gas for electricity generation. A deep Arctic freeze socks in the Northeast, and every home’s furnace is working overtime. The surge of natural gas use for furnaces means power plants can’t get enough fuel. Power fails, and furnaces can’t start. Gas pipeline compressors lose power, and natural gas flow stops. What then? That’s the nightmare scenario both regulators and industry are struggling to avoid, as the electric and gas industries quickly become more interdependent.
But no one is finding easy answers. The issue is particularly acute in the Northeast, where gas pipelines from the South have gone empty in cold winters past. In 2011, more than 50% of New England’s electricity and more than a third of New York and New Jersey’s power came from gas.
The Federal Energy Regulatory Commission (FERC) spent August holding five regional conferences, where commissioners discussed local situations directly with electric grid operators, utilities, power generators, natural gas pipeline operators and gas producers and distributors. “There’s no crisis now,” said FERC Commissioner Philip Moeller, citing last year’s unusually warm winter, “but there is clearly a challenge down the road” as coal plants nationwide are being replaced with gas-fired generation.
“There is an electric problem,” agreed FERC Commissioner John Norris. “We have to make sure there is a consistent fuel supply to meet electricity needs.”
State government should stay out of the business of picking winners and losers in the energy markets because [a] it has a poor track record of success and [b] consumers in a free market make decisions about what they want to buy and from whom and it is not government’s role to take the place of consumers. Oh, we hear the calls for “choice,” “balance” and “fairness.” Balderdash. Utilities know where the customers are just as we do – they don’t need a seeing eye dog government to lead them down the path or certainly not have government handing utilities customers they can’t get on their own.
Every action has unintended consequences. Let’s avoid another energy boondoggle handed to us by government and utilities like the all-electric home. Energy markets change and this one is changing too. Consumers decide who wins and who loses – government should stay out of those decisions.