Cost to buy electricity heats up

Shut plants, demand send wholesale price to 200 times normal

By Peter J. Howe, Globe Staff, 5/9/2000

ven as managers of New England's electric grid issued a forecast that power supplies should be adequate this summer, unusually high temperatures, combined with a huge number of unexpected plant shutdowns, sent spot-market prices up to 20 times normal levels yesterday.

With twice as many plants down for maintenance as had been scheduled - a situation that raised suspicions among some energy buyers - spot market prices hit $6,000 a megawatt-hour for several hours yesterday, up from $25 to $30 normally.

Unless grid managers find a reason to reset market prices, as they have during some previous periods of peak demand, some wholesale power buyers spent as much buying electricity for clients yesterday as they would normally spend in an entire month of spring afternoons.

Officials said yesterday's price spike should affect only brokers and speculators. But over time, some industry analysts fear New England electric customers will begin to pay noticeably more if wild price spikes continue to be a regular feature of the new competitive market launched last year.

''It may take a long time for it to filter down to the end user, but the cost is there,'' said Mark Ishkanian, a spokesman for Central Maine Power in Augusta. ''We all want the markets to work, but surely there have been some bumps on the road [that] will call into question the integrity of the system.''

In what officials acknowledged was an embarrassing coincidence, on the same day that grid manager ISO New England, a nonprofit company in Holyoke, had to declare a ''power watch'' for the region and urge people not to use air conditioners, it issued a forecast that power supplies should be adequate this summer.

ISO officials cited 2,000 more megawatts of capacity expected to be in service by June compared to a year earlier. Repeated power crunches last summer led to 12 days of power watches and warnings, and occasional state government shutdowns to stave off threats of rolling blackouts to conserve power.

Yesterday, one issue that raised questions among some industry officials was that more than 8,400 megawatts of generating capacity - nearly 45 percent of the peak afternoon demand - was out of service, including about 3,600 megawatts more than expected in ''unplanned outages'' not related to seasonal maintenance.

Some officials said it was legitimate to ask whether generators were holding plants out of operation in order to drive up the spot-market price. Everyone selling power in a given hour gets the last, highest price paid to a generator to meet peak demand, and one afternoon of windfall profits can make a huge impact on a plant's monthly income.

Stephen Tuleja, president of Alternate Power Source in Westwood, which buys power for FleetBoston Financial Corp., Texas Instruments' Attleboro plant, and several other large electric users, said the ISO agency ''must step in'' to offset yesterday's ''excessive unplanned outages.''

''New England consumers should not bear the brunt of untimely and questionable maintenance,'' said Tuleja, echoing comments made by some other buyers who asked not to be named.

Tuleja predicted that many Massachusetts retail customers soon could see power prices rise 20 percent higher than they were before the March 1998 deregulation law, ''if the flaws in the wholesale market are not corrected immediately.''

Central Maine's Ihskanian said, ''I am not going to accuse anybody of anything, but when you are talking about $6,000 prices, that's a very strong incentive'' for generators and resellers to engage in ''opportunistic actions'' to try to drive up the market price.

Already, the ISO has moved to abolish one of the new wholesale markets - which pays generators a monthly bounty for maintaining ''installed capacity'' in the region - because of evidence one or more unidentified generators schemed to drive up prices in January.

James B. Sinclair, spokesman for the ISO, acknowledged that the level of unplanned outages was high. ''It's something that we are obviously watching very closely, and we certainly are not shy about asking questions.''

However, Sinclair said ISO officials found no immediate reason to be suspicious about the number of plant outages. Under ISO competitive secrecy rules, he could not say which plants were down, but industry officials said one big contributor was a shutdown at a Millstone nuclear unit in Connecticut.

Neal B. Costello, general counsel of the Competitive Power Coalition, representing generators, said, ''We want to make sure that this doesn't get laid at the feet of generators. The only ones paying $6,000 are sophisticated speculators in the market who got caught short and made a bad decision or an arrogant decision.''

Costello said people raising questions about price-fixing by generators have ''a vested interest'' in pressuring the ISO to knock down market prices and said, ''This idea of a generators' cabal just does not exist.''

Michael Monahan, spokesman for NStar, the parent company of Boston Edison, Cambridge Electric, and Commonwealth Electric, said the company's 1 million customers would not be affected by yesterday's market action because the utility has a fixed-price power supply contract through June 1 with Select Energy.

But Massachusetts Electric has asked state regulators for permission to raise power prices charged to more than 200,000 ''default service'' customers by 54 percent starting June 1 because it fears continued market price spikes.

Monahan confirmed NStar is considering a similar request, which would affect anyone who got a new electric account after March 1998 but not people who get ''standard offer'' power.

http://www.boston.com/dailyglobe2/130/business/Cost_to_buy_electricity_heats_up%2b.shtml

-- Martin Thompson (mthom1927@aol.com), May 09, 2000