Algonquin pipeline and your high electric rates: your complete guide

Choose EnergyEnergy 101Algonquin pipeline and your high electric rates: your complete guide

What does the Algonquin natural gas pipeline have to do with rising electricity rates in New England? Plenty, as it turns out…Let’s start at the beginning.

How is the rate you pay for electricity related to natural gas?

In New England, more than half of your electricity is produced by burning natural gas. That means that power plants rely on natural gas to generate the electricity you use in your home or business.

As a cheaper, cleaner alternative to oil and coal, natural gas has become a popular fuel for generating electricity in the United States.

But, when cold weather winter hits, demand for natural gas goes sky high and that creates a problem. Electric power plants want the gas to generate more affordable electricity, while many homes and businesses need the gas for heating during frigid winter months.

In the battle for wintertime natural gas supplies, homes and businesses win. They get first dibs on natural gas supplies to satisfy their heating needs. What’s left over goes to power plants. Unfortunately, there hasn’t been that much left over in recent years, and that means that electricity generators have to use more expensive fuels like coal or oil to generate your electricity.

Bottom line: when you need more natural gas to heat your home, electricity is more expensive to generate. And when electricity is more expensive to generate, you pay higher electricity rates.

Algonquin Natural Gas Transmission Pipeline in New England

Source: Spectra Energy

How does this tie back to the Algonquin pipeline?

Natural gas is transported via pipelines, and the main natural gas pipeline in New England is the Algonquin Gas Transmission pipeline. It runs through New Jersey, New York, Connecticut, Rhode Island and Massachusetts. Massachusetts, and particularly the National Grid service area, are heavily reliant on the natural gas transported by the Algonquin pipeline to generate electricity.

You can see evidence of this challenge by looking at the rate increases for the last couple years. Both last year and this year, National Grid electricity supply rates increased 40 percent from their summer lows.

In short, the problem with the pipeline is that it cannot deliver enough natural gas to satisfy demand in the wintertime.

How is the pipeline problem being solved?

There are currently two short-term solutions in the works:

  • The pipeline could connect to other smaller pipelines allowing more gas to get to more communities.
  • The pipelines could be larger in order to store and transport a greater volume of gas to meet the winter demands. Currently, some pipes are as small as 12 inches in diameter.

In March, the Federal Energy Regulatory Commission approved connecting the pipeline to other smaller pipelines. In addition to adding new pipeline, there are also plans to replace the current pipes with larger ones (up to 42 inches in diameter). This latter portion makes up about 70 percent of the project. This would allow for more gas to get to more people more quickly when they need it most during the chilly winters.

Work has begun this month with some of the work to be completed by November 2016.

There are additional proposals that haven’t made it into federal regulators’ hands yet but those are expected to be completed by the end of 2018 if they get approval soon.

What about other non-pipeline solutions?

Not everyone is so keen on building out the pipeline. Some are concerned that improving the Algonquin pipeline may damage the natural environment it’s nearest to. While many of the states the pipeline touches have plans to integrate renewable resources like wind and solar power into their electricity generation mix, these are longer term solutions that won’t bring immediate relief from rising electricity rates. It’s all coming, but we need a fix to keep your rates from spiking in the meantime.

How do you set yourself up for savings now?

When the pipeline work is completed in the next few years, the rate spikes should be resolved. The completion will lead to a more stable energy market.

We recommend shopping around for a competitive energy supplier now and signing up for a 36-month plan (three years) with a low rate so you are all set until this situation settles a bit.

We know that for the most part, electricity rates aren’t going to decrease over the next three years so you’re going to see significant savings, but also earn yourself some serious peace-of-mind by not having to worry about your rate increasing due to the pipeline issues.