EIA: Northeast and Mid-Atlantic Power Prices React to Winter Freeze and Natural Gas Constraints

A record-setting bout of bitter cold weather swept down through the Midwest and across most of the country in early January. The Northeast region reacted with upward spikes in wholesale natural gas and power prices as generators and other customers struggled to procure natural gas supplies. In the Mid-Atlantic region, record-high winter peak demand along with unexpected outages of power plants and natural gas equipment drove peak electricity prices even higher than in New York and New England. The sharp rise in Northeast and Mid-Atlantic natural gas and power demand also spurred record-high natural gas storage withdrawals.

Day-ahead, on-peak power prices at the Massachusetts Hub went slightly above $200 per megawatthour during a brief cold spell in mid-December 2013 and up to $237.75/MWh during the early January freeze . These prices were mainly driven by corresponding movements in natural gas prices as the demand for natural gas for both power and heating led to full use of natural gas pipelines in the region and a scarcity of supply. Prices at the Algonquin Citygate trading point in Massachusetts, which normally remain around $3-$6/MMBtu during unconstrained periods, reached slightly over $30/MMBtu in mid-December 2013 and were up to $38.09/MMBtu in early January.

According to the North American Electric Reliability Corporation’s (NERC’s) annual winter reliability assessment, New England faces essentially the same constrained natural gas supply situation as it did last winter. The Independent System Operator of New England (ISO-NE), the grid operator for New England’s electric system, has implemented a number of short-term measures to mitigate the effects of fuel supply risks this winter, including a new Winter Reliability Program, which solicited bids from oil-fired, dual-fuel, and demand response resources to provide extra capacity to the system. The program requires oil-fired generators to maintain oil inventory on-site and dual-fuel generators to demonstrate timely gas-to-oil switching capability.

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