Depending upon your location within the U.S., capacity costs can amount to up to 40% of your overall monthly electric supply bill. Capacity is a charge levied by each regional Independent System Operator (ISO) to ensure that resources are available to meet maximum energy demand periods, or peak days, on the electric grid throughout the calendar year. These “peak days” typically occur during hot summer months.
In New England, the Capacity Year (CY) runs from June 1st through May 31st of each year. During this period, each end user is assigned a new Capacity Tag based upon their on-site energy demand during the day in which the electric grid experiences Peak Demand relative to all other days. To be sure that adequate electric supply is available into the future, ISO New England holds an annual ‘Forward Capacity Auction’ (FCA) where regional producers participate to meet the expected energy needs of the regional grid three years into the future. For example, ISO NE is currently holding their auction for CY 2025-2026. Generators participate in the auction to obtain a Capacity Supply Obligation (CSO) for the future capacity year. Generators are then guaranteed payment by the ISO to be on standby and ready to dispatch required energy supply in the future.
On February 7th, 2022, ISO New England announced that it will be calculating auction results for 2025-2026 in two ways. In one scenario, they will include a controversial and yet to be completed natural gas power plant in Connecticut, known as The Killingly Energy Center. In the other scenario, they will be excluding this fuel source from the auction results. In 2019, Killingly was awarded a Capacity Supply Obligation from ISO New England, however at this point, both the Federal Energy Regulatory Commission and ISO NE have ruled that Killingly is not on track to be completed in time to be a reliable source of electric generation for the capacity year in consideration.
ISO NE stated that they will not be releasing auction results for either scenario until there is “greater certainty” about the development of the Killingly Energy Center. At this time, it is unknown how long this process may take and what the cost implications may be.
NTE Energy is developing the Killingly Energy Center. In a recent public statement, NTE announced their disagreement with the ruling and still intends to develop the natural gas fired power plant citing the need for additional resources to meet New England’s energy demand into the future.
This debate is far from concluded and will undoubtedly have an impact on final capacity prices for CY 2025-2026. The Atlas Retail Energy regulatory team will continue to monitor the evolving situation. Reach out to your Atlas Advisor or contact us to learn more and discuss how this may impact your energy costs into the future.