1. Presentation Title
January 3, 2019
Why Are Electricity Prices Rising in New England, and What (if anything) Should We Do About It?
Richard D. Tabors, Ph.D.
Vice President
May 19, 2006
Speaker Name

2. Why Are Electricity Prices Rising?
Presentation Title
January 3, 2019
Why Are Electricity Prices Rising?
The Easy Answer
Today, on the margin, we have all virtually identical gas fired combined cycle generation
Natural gas goes up in price
Electricity goes up in price
BUT… Is this the right question?
The right question may be the ICAP (LICAP) question…
Are Prices Going UP ENOUGH?
Private and Confidential
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3. Presentation Title
January 3, 2019
Private and Confidential
Speaker Name

4. “Missing Money: (From PJM analysis) for a peaker
Presentation Title
January 3, 2019
“Missing Money: (From PJM analysis) for a peaker
Private and Confidential
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5. A FAR TOO SIMPLE ANALYSIS
Presentation Title
January 3, 2019
A FAR TOO SIMPLE ANALYSIS
Using GE MAPS for New England
Holding fuel prices constant at the 2006/7 level
Allowing Demand to increase as forecasted
Allowing no new entry beyond what is currently nearing completion
Allowing no further retirements…
Not a bad scenario in some ways, particularly w/r/t new construction
Private and Confidential
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6. New England Average Monthly Costs in 2005$
Presentation Title
January 3, 2019
New England Average Monthly Costs in 2005$
Monthly Average (Real 2005$/MWh)
Month
2007
2008
2009
2010
2011
2012
Jan
109.25
110.12
109.94
110.06
111.18
111.01
Feb
103.59
106.27
108.07
107.37
106.91
104.74
Mar
84.99
87.22
87.31
84.85
90.68
89.96
Apr
62.86
62.89
64.81
65.25
72.32
62.68
May
70.51
76.04
68.33
68.25
76.72
77.31
Jun
75.36
79.03
75.19
80.20
88.63
88.57
Jul
83.41
87.08
89.76
95.13
88.54
114.64
Aug
92.88
92.25
103.76
100.76
110.60
147.80
Sep
76.19
78.08
76.94
83.78
85.24
Oct
61.00
65.66
66.94
63.71
65.71
68.50
Nov
77.54
76.82
79.06
80.42
81.63
84.26
Dec
84.59
85.72
84.76
86.51
89.18
90.03
Private and Confidential
Speaker Name

7. New England Average Monthly On-Peak Costs in 2005$
Presentation Title
January 3, 2019
New England Average Monthly On-Peak Costs in 2005$
Monthly On-Peak Average (Real 2005$/MWh)
Month
2007
2008
2009
2010
2011
2012
Jan
117.61
118.44
117.94
117.85
119.86
119.82
Feb
111.97
115.16
116.37
116.10
115.83
114.24
Mar
93.64
95.20
95.19
92.44
100.63
99.53
Apr
71.05
71.39
72.17
73.11
78.74
72.33
May
76.87
86.17
76.63
78.40
89.32
89.37
Jun
86.22
93.25
87.79
97.77
112.34
110.58
Jul
102.87
106.98
108.57
121.35
108.92
162.21
Aug
113.71
116.65
137.80
127.47
145.69
220.44
Sep
95.62
89.74
93.98
90.52
102.14
110.57
Oct
71.65
72.42
73.77
72.60
73.55
76.11
Nov
86.35
85.75
91.07
92.86
93.05
96.34
Dec
94.00
93.21
96.88
98.69
101.24
Private and Confidential
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8. Presentation Title
January 3, 2019
Private and Confidential
Speaker Name

9. Why isn’t the Demand Side the Answer?
Presentation Title
January 3, 2019
Why isn’t the Demand Side the Answer?
The market signals may not be right for those for whom cost is a driving force.
Not the residential sector
Not (probably) the small commercial sector
BUT
Large Commercial
Industrial
Governmental
LMP provides the correct (real-time) information but not when large users need it.
Private and Confidential
Speaker Name

10. Fixing LMP (making the market work)
Presentation Title
January 3, 2019
Fixing LMP (making the market work)
Day ahead is when the large user needs the hourly price information for the next day
But…………
A large buyer must state what they need before they know what the cost will be. Then after the market clears they find out what the hourly cost will be.
Real time it is the same story. You find out after you consume in that case
Private and Confidential
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11. Presentation Title
January 3, 2019
A possible solution
Requires a LARGE aggregator (needs to take advantage of law of large(r) numbers)
Day Ahead the aggregator puts in a bid for quantity, (a forecast of the hourly needs of the aggregate of their customers)
Once they get hourly prices based on this estimated quantity they GUARANTEE this price on an hourly basis to their customers.
Customers schedule against a known price having paid a small premium to the aggregator for their assuming the risk of both quantity and price.
In real-time customers consume what they consume but at a price certain
After real-time the aggregator pays or is paid the difference between the day ahead quantity and that actually consumed but at the real-time price
Private and Confidential
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12. Why does this work The Law of large numbers on the aggregator side
Presentation Title
January 3, 2019
Why does this work
The Law of large numbers on the aggregator side
Price certainty a day ahead (for automated scheduling) for large consumers
Aggregator is able to absorb the risk of a slight error one way of the other whereas the large consumer is not.
Private and Confidential
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13. Richard D. Tabors CRA International 50 Church Street
Presentation Title
January 3, 2019
Richard D. Tabors
CRA International
50 Church Street
Cambridge, MA 02138
(617)
Private and Confidential
Speaker Name