ISO New England (ISO-NE) on Monday called for the region to increase the availability of natural gas by building new liquefied natural gas (LNG) import terminals and natural gas pipeline capacity in order to help protect consumers from volatile fuel supplies.

The regional transmission organization (RTO) called for the construction of the new gas infrastructure in a broader announcement reporting that wholesale electricity prices across New England fell significantly in the four months ending March 31. This downward trend closely tracks the price of fossil fuels, particularly natural gas, which powers a great deal of New England’s electric generating capacity, ISO-NE said.

Between Dec. 1, 2005, and March 31, the average wholesale price of electricity fell from more than $100/MWh to $63.09/MWh, a 38% decline. At the same time, the average price of natural gas delivered to New England declined from $13.86/MMBtu to $7.58/MMBtu, a 45% drop. The cost of fuel for running power plants makes up more than 80% of the wholesale price of electricity.

“Mild winter weather in New England, together with post-hurricane recovery of natural gas and petroleum production capabilities in the Gulf of Mexico, have enabled energy producers to replenish supplies, thus driving down fuel prices,” said Gordon van Welie, ISO-NE CEO.

“Contrary to the assertions coming from some quarters that electric deregulation is the root cause of higher electricity prices, these data demonstrate the high correlation between fossil-fuel and wholesale electricity prices,” he added.

Recently, New England retail electricity distributors, including National Grid, NSTAR, and Cape Light Compact, signaled their intention, under the direction of state regulatory agencies, to reduce basic service rates for their customers by significant amounts, citing lower fuel prices as the driving factor.

New England is more reliant on natural gas for electricity production than almost any other region of the U.S. Forty percent of the region’s generating capacity uses natural gas as the primary fuel, up from 17% in 1999. This leaves the region particularly vulnerable to the impact of wide swings in the price of fossil fuels, as New England experienced following the damaging effects of Hurricanes Katrina and Rita last fall, the RTO said.

New England “could hold down wholesale electricity price increases if the region reduced its demand for electricity and used more alternative sources of energy to generate electricity, such as wind, biomass, clean coal, and nuclear,” van Welie said. “In addition, more of the region’s gas-only power plants should be converted to enable the use of either natural gas or fuel oil, based on the cost and availability of each energy source.”

In addition, energy conservation can help reduce electricity costs, ISO-NE said. “For example, more industrial customers should take advantage of demand management programs, which provide financial incentives to conserve electricity. And policy makers should provide more businesses and residential consumers access to time-based retail electricity rates,” the grid operator said.

“In the absence of attainable, practical measures like these, New England may run short of electricity during periods of high demand as soon as 2008,” van Welie said. “The region would pay a high price in terms of both energy costs and the well being of our residents and businesses.”

Van Welie last week said that with local opposition cropping up against everything from offshore wind turbines to transmission lines, New England’s “severe case of NIMBYism” is a key challenge for the region. He made his comments in an appearance at the Platts Northeast Power Markets Forum.

Also appearing at that forum was FERC Commissioner Nora Brownell, who said that a “classic example” of the country’s “failure to plan is New England and, frankly, the whole Northeast. We just aren’t doing it right.”

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