Located in the southeastern Massachusetts town of Somerset, the Brayton Point Power Station is New England’s largest coal-fired plant and has been producing 1,530 megawatts of electricity since 1963. But that will change soon, sending a ripple effect throughout the region.

In October 2013, Energy Capital Partners, the private equity firm that owns Brayton Point, announced that it would permanently close the plant in May 2017. The decision was primarily an economic one, according to reports. In the current market environment, where natural gas supply is in abundance in the U.S., the power plant continues to see rising competition from gas-fired generators in the region. Additional factors are the cost of complying with increased environmental regulations as well as the plant’s age.

Shortly after the announcement, the independent operator of the power grid, ISO New England, asked the owners of Brayton Point to keep the plant running, as it was determined that the plant was needed beyond the expected closing date to meet New England electricity demand and to ensure regional grid reliability. The power plant does not hold any supply obligations beyond May 2017, however, so the owners declined the request and will continue with the original plan to close the plant.

In the face of grid reliability needs, the consequences of the Brayton shutdown are expected to be seen by all New England power customers, particularly those in Southeastern Massachusetts and Rhode Island, in the form of future rate increases. The biggest form of these rate increases is expected to be seen from capacity costs.

The New England Forward Capacity Market is run by ISO New England to procure enough power supply to meet New England’s forecasted demand approximately three years in advance, to provide compensation for the cost of generation for existing resources, and to attract new resources to constrained regions.

The New England power region is broken into eight capacity zones – three in Massachusetts (Western [WCMA], Northeastern [NEMA] and Southeastern [SEMA]) and one in each of the other New England states. The northwestern/northern boundary of the SEMA zone ranges to the towns of Douglas and Sutton and extends east to Weymouth; all Massachusetts towns south of that boundary, including the Cape and islands, are in the SEMA zone.

The forward capacity auction takes place three years in advance and determines the capacity rates for generators. Funds paid to the supply resources (generators) must be recouped by ISO New England from the load-serving entities, which trickle down to the end user (commercial, industrial and residential accounts).

In February, the ISO New England held the forward capacity auction for the June 2018 to May 2019 power year and, as warned by the ISO New England after the Brayton Point closure announcement, the SEMA and Rhode Island capacity zones did not procure enough capacity to fulfill expected supply resource needs for the period. The SEMA/RI zone fell 3.18 percent short of the forecast, while all other zones were 1.48 percent oversupplied. As a result, capacity prices in the SEMA/RI increased 64 percent from prices set for the previous power year – and those prices were already 123 percent higher than its preceding power year. (For more details, visit http://iso-ne.com/isoexpress/web/reports/auctions/-/tree/fcm-auction-results.)

These rising capacity rates have been officially published by the ISO New England and all power suppliers/load serving entities will be charged these rates for the next three years on their capacity invoices. Reconfiguration auctions that take place monthly may impact these prices going forward, but the current rates are a good indication of the level of pricing to be expected.

Capacity costs will be included in a customer’s total fixed rate, indexed rate, or passed-through as a separate line item. For new or renewal contracts, the difference in rates between fixed and passed-through capacity is negligible, as the rates are essentially set, but customers can manage their capacity tag to offset these cost hikes.

The account capacity tag is a key component in determining the capacity costs along with the capacity rate. The capacity tag in New England is set during the previous power year on a single hour when the overall demand for the region hits the annual high. Once that hour is determined, each account’s capacity tag is set based on that hour’s consumption.

Constellation NewEnergy provides a number of capacity tag management programs for eligible customers, including the popular Peak Response Program, to mitigate high capacity rates and to lower overall energy costs. Constellation is the endorsed energy supplier to the MMA’s MunEnergy program.

For more information, visit energy.constellation.com/MMA or contact Bill Bartlett at william.bartlett@constellation.com or (855) 269-1316.

By Brandon L. Fong, Constellation Energy