Environmental group challenges basis for New England natural gas pipeline buildout

Posted June 27, 2014, at 3 p.m.
Last modified June 27, 2014, at 3:43 p.m.

PORTLAND, Maine — An environmental group launched a new salvo in an ongoing battle across New England over whether states should commit public funds to expanding natural gas capacity.

Regulators in the six states are considering the merits of tapping ratepayers to finance a natural gas pipeline buildout that industrial electricity consumers and others, including Maine Gov. Paul LePage, say is essential to lowering electricity prices and spurring economic development in the region.

In Maine, the state’s Public Utilities Commission is taking up the issue whether to approve a tariff or fee on ratepayers’ electric bills that amounts to $1.5 billion over 20 years in order to support new natural gas pipelines that would serve electricity generators. Governors of the six New England states in December signed an agreement to explore the issue together through the New England States Committee on Electricity, or NESCOE.

Environmental groups and renewable energy advocates say the process has relied too heavily on gas industry insiders and excludes consideration of other ways to alleviate the region’s electricity generation needs. They have also complained that ratepayers would be exposed to an unreasonable financial risk in a speculative venture, which could yield big profits for developers.

NESCOE has two delegates from each of the six states working on a pipeline buildout proposal to submit to federal regulators by the end of this year.

Natural gas, which was used to generate 43 percent of New England’s power in 2012 and 2013, exerts an increasingly significant impact on the region’s electricity prices. With domestic production on the rise, it is considered an inexpensive, reliable energy source because natural gas-fired power plants can be turned on relatively quickly. But New England’s pipeline infrastructure is inadequate to handle the volume of natural gas that could be pumped east from U.S. shale fields.

“The fact is that Maine people are being hurt terribly by the natural gas pipeline constraints,” said Tony Buxton, an attorney who is lead counsel for the Industrial Energy Consumers Group, which represents many of the state’s paper mills and other large energy consumers.

Greg Cunningham, a Portland-based attorney with the Conservation Law Foundation, disagrees. He takes issue with the process he said began with a conclusion: that more natural gas pipelines are the answer.

“What’s objectionable in the process is that they have leaped over other alternatives,” Cunningham said, proposing that greater pipeline efficiency, added gas storage facilities, LNG infrastructure and other changes to the power grid could help solve the problem.

“Those aren’t part of the solution that the [Maine Public Utilities Commission] or [the New England States Committee on Electricity] is looking at. They are going immediately to the most expensive, highest-risk and most permanent solution.”

But Buxton said a new pipeline is the only solution to the delivery bottleneck that prevents Maine from tapping enough of the new, cheaper supply of domestic natural gas to drive down energy costs in a way that is needed.

“None of [the other measures] make a significant difference in the absence of pipeline capacity — that’s the overwhelming [cost] driver here,” he said.

A February study by Competitive Energy Services estimated the state would need to increase capacity by 2 billion cubic feet per day to bring natural gas prices for New England power plants in line with the West and the South.

The case before the three-member PUC will determine whether Maine should commit ratepayer funds to buying such pipeline capacity. Commissioner David Littell, in a March 20 written opinion, said the proceeding could set a significant precedent.

“It will examine economic and legal issues never before considered by a state commission; it could involve the largest singular investment by Maine ratepayers authorized in this commission’s 100-year history,” he wrote.

Buxton and Cunningham are two of the parties participating in hearings in the PUC case, which is expected to last through the summer and fall. The Legislature directed the PUC to study the issue as part of the omnibus energy bill that was passed last summer by wide margins in both chambers. Buxton and IEGC helped to shape that bill that authorizes the state to execute any contracts of up to $75 million per year, for 20 years, to expand natural gas capacity before the end of 2018.

Buxton’s outlook has support at high levels in the region’s power system, as well.

“There is no way [New England] can conserve our way out of this problem,” Gordon van Welie, CEO of ISO-New England, said in an interview with NECN earlier this month. “What we really need is to build some additional pipeline capacity that is effectively dedicated to the use of serving gas-fired power plants on the system.”

He said new projects coming on line aim to serve commercial and residential heating customers, not power plants. Proponents of the pipeline effort are making the case that the investment will ultimately lower the cost of power enough to save ratepayers money.

Cunningham and CLF have also raised questions about the level of involvement supporters of the pipeline buildout have had in crafting a regional proposal to address the issue. In their latest release of public records, emails show that Tom Welch — one of Maine’s delegates to NESCOE and the chairman of the Maine PUC — has been in talks with pipeline companies regarding how the proposed pipeline financing would work.

In a February email, Welch wrote to NESCOE executive director Heather Hunt that pipeline company Kinder-Morgan would move forward with a pipeline if it had commitments for at least 600 million cubic feet of gas per day. The target date for having gas flowing through that pipeline is 2018, Welch wrote.

Welch dismissed CLF’s complaints against the transparency of the process to New Hampshire Public Radio, saying the opportunity to participate in the plan was open to all interested parties, including pipeline developers.

Buxton echoed the sentiment, saying future proceedings before state and federal regulators and ISO-New England would be open for that kind of continued input.

“I think what CLF is doing is complaining that most other parties don’t agree with them, not that they aren’t having enough participation,” Buxton said.

Earlier this month, CLF released a briefing that included dozens of documents acquired through formal public-access requests to state agencies and NESCOE.

Those documents give insight to the direction of talks and who is involved in organizing the regional proposal, which ultimately will go before the Federal Energy Regulatory Committee for approval.

A February 2014 memo from NESCOE managers to staff, obtained by CLF and published on its website, sets out a direction for the pipeline proposal’s future. It indicates that if certain states, including Maine, grant regulators the authority to purchase pipeline capacity, the New England states would seek bids for transmission and generation assets.

The document identified the current proposal as “ a one-time solution in light of exigent circumstances,” noting that other market solutions and alternatives may be needed in later years.

The document gets to a central issue under examination in the PUC case: determining the return in power price reductions for a specific amount of expanded natural gas capacity.

Cunningham said one concern he has for Maine is whether the state could end up paying more than its fair share for the power price savings it stands to see.

A study commissioned from the Massachusetts-based Sussex Economic Advisors will provide one framework for estimating the costs and benefits of increasing pipeline capacity to the region, and other reports are expected to be filed. The managing partner of Sussex previously worked for Bay State Gas Company, according to the consultancy’s website.

The PUC and interested parties were scheduled to meet Friday morning to discuss the Sussex report.

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