INFOGRAPHIC

Ways to deal with natural gas price spikes in Maine, New England under advisement

Posted July 15, 2014, at 3:30 p.m.
Last modified July 15, 2014, at 4:32 p.m.

PORTLAND, Maine — New England’s governors and electricity grid manager have agreed to work together to improve the region’s energy infrastructure, including exploration of how to expand access to natural gas. But participants in the region’s energy markets differ on how to do so.

As key details of the effort to expand natural gas capacity remain undecided — including whether the power companies would receive an ownership interest in new or expanded pipelines — reactions from regional stakeholders to the outline of a plan to support new natural gas capacity through a tariff on electricity customers indicates big questions ahead.

That includes whether the entity signing contracts for new pipeline capacity would be a power company such as Emera Maine or Central Maine Power Co. or a nonprofit Massachusetts entity and how the cost of a tariff would be shared among the states.

Representatives from the six New England states will hash out those questions through the New England States Committee on Electricity, or NESCOE, which drafted guidelines last month that each state could use in soliciting proposals for energy resources, including natural gas pipeline capacity.

A staff memo from NESCOE described the plan to use a tariff on electricity ratepayers to help finance new pipeline as “ a one-time solution in light of exigent circumstances.”

Market forces

The problem was highlighted last winter, when heating needs spiked and resulted in a reduced amount of gas available to generate electricity. Competitive bidding in New England’s wholesale power market sets the following day’s price at the cost for the last bit of generation needed. With natural gas making up almost 50 percent of the region’s electricity generation, supply constraints drove up prices for industrial and commercial customers buying on the wholesale market.

Residential customers will see those prices reflected in their power rates later because the standard offer price set by regulators — and used by most buyers — uses a three-year average to insulate ratepayers from fluctuating prices.

In preparation for a coordinated request for energy project proposals through the regional group or each state, a chorus of electricity companies, pipeline companies and other stakeholders shared their thoughts earlier this month on the general outline of a plan supporters say will lower power costs by increasing the supply of natural gas dedicated to the region’s electricity generators.

The responses were varied. Houston-based Spectra Energy said it could double the capacity of two pipelines it operates serving New England and Maine by 2018. NRG Energy Inc. criticized the premise of NESCOE’s tariff proposal for interfering in the region’s competitive energy markets.

“Contrary to NESCOE’s stated intentions, this approach is likely to maximize harmful market impacts, by creating an entirely new quasi-governmental entity that will have an ongoing presence in the market,” William Lee Davis, east region president for NRG, wrote.

The company owns a mix of renewable and traditional generation assets and was scheduled to start construction Tuesday on a $1 billion project to reduce emissions from a coal power plant in Texas, according to the publication FuelFix.

NRG’s concerns were echoed by GDF Suez, owner of liquified natural gas importer Distrigas of Massachusetts. Francis Katulak, the company’s president and CEO, wrote in a July 3 letter that pipeline expansion supported by a tariff would create “an unlevel playing field.”

“[The concept] explicitly picks winners and losers with respect to any other potential natural gas reliability solution to the states’ concerns,” Katulak wrote.

Katulak has been a vocal opponent of the plan, citing a study his company commissioned in May arguing LNG imports could be a salve to the region’s demand for more natural gas to generate power in the winter.

A report by the Portland-based energy consultancy Competitive Energy Services noted expanding pipeline capacity by 1 billion cubic feet per day would mean electricity generators would spend 800 fewer hours powered by LNG, a level it said raises doubts about whether the Canaport LNG terminal in Saint John, New Brunswick, and Distrigas in Everett, Massachusetts, could continue to operate at those “severely reduced volumes.”

Meanwhile, pipeline owners are stating their case.

Citing that its pipelines connect to more than 60 percent of the region’s natural gas-fired power plants, Spectra wrote in its letter any pipeline expansion that lowers power costs and increases reliability of the regional grid would involve its Algonquin pipeline running from Boston to New York and its Maritimes and Northeast pipeline connecting Boston and the Canadian Maritimes.

Other pipeline entities, including the Kinder Morgan-owned Tennessee Gas Pipeline Co., have also expressed interest in the process, saying its pipeline through western Massachusetts, to serve that state, New Hampshire and Connecticut would help achieve NESCOE’s goal to bring New England natural gas prices in line with other areas of the country.

But those projects will likely face hurdles outside of NESCOE as well. Last week, The New York Times reported Kinder Morgan’s pipeline has generated some controversy from homeowners along the possible route for its proposed 180-mile line .

NRG Energy and GDF Suez are joined by environmental groups like Environment Northeast and the Conservation Law Foundation in objecting to the plan state representatives to NESCOE are crafting through NESCOE. Greg Cunningham, a Maine-based attorney with the Conservation Law Foundation, said in a June interview with the Bangor Daily News the complexity of the issues before regional and state regulators are likely to produce uncommon alliances.

“I think this case ultimately makes for some strange bedfellows,” Cunningham said. “You will have a diverse array of folks who are opposed to this concept of a regional procurement or even a Maine procurement of natural gas because it’s meddling with the markets.”

The law foundation, which has raised market and environmental objections to the plan, has butted heads with NESCOE over the openness of its proceedings, to which the entity responded in a letter Monday, saying it is not a government agency subject to public access laws.

Power brokers

The NESCOE plan would have existing electric utilities sign long-term contracts with those expanded pipeline companies to fulfill a federal requirement for such contracts before new pipelines are approved.

Utilities including Emera Maine, Central Maine Power Co. and companies under Northeast Utilities and National Grid said in recent letters they support such a plan that could involve multiple “contract entities.”

Emera and the other utilities said in their letters to NESCOE they would hope to recover their costs by receiving an ownership stake in the pipelines in exchange for lending their good credit to the enterprise.

As an alternative, the regional group also is considering whether a nonprofit entity like the Massachusetts Municipal Wholesale Electric Co. could serve as the contract entity for a lower price tag, because the nonprofit could issue tax-exempt bonds, paying less interest on its debt, and would not require a specific return on equity.

In a letter to NESCOE, Ronald DeCurzio, CEO of the nonprofit, wrote he estimates that approach could reduce the cost of a $1.6 billion pipeline expansion project by $7 billion over 30 years.

As NESCOE considers those submissions, it has enlisted the help of regional grid operator ISO-New England to draft a tariff plan to submit to the Federal Energy Regulatory Commission, who would give such a plan final approval. As of June, NESCOE stated plans to submit a filing to FERC by as early as this fall.

In Maine, regulators are still considering whether and to what extent they should use the authority to purchase up to $1.5 billion in pipeline capacity over 20 years. That authority was granted in the so-called omnibus energy bill passed last summer. That docket, 2014-00071, has technical conferences scheduled Thursday and Friday at the Maine Public Utilities Commission offices in Hallowell.

SEE COMMENTS →

ADVERTISEMENT | Grow your business
ADVERTISEMENT | Grow your business