- Industry: Energy & Utilities
by Emily McGavisk
In recent years, New England has seen a shift in energy generation. Natural gas now accounts for almost 50 percent of energy generation in the region, compared to just 18 percent in 2000. While demand for natural gas has grown, pipeline capacity to support its transport has not. Many New England states are grappling with this bottleneck, which many feel will threaten reliability and cause seasonal price spikes. Clean Power Plan compliance initiatives may exacerbate this problem, as utilities begin switching from coal to cleaner-burning fuels like natural gas.
Natural gas is typically transported through a pipeline system from supplier to customer, and pipeline capacity is typically sized based on firm contracts with local distribution companies that prepay for pipeline capacity. Unused capacity from buyers with firm contracts is resold on the natural gas market. New England is served primarily by two pipelines with access to shale gas: the Algonquin pipeline and the Tennessee pipeline. Increasing demand has caused these pipelines to operate close to maximum capacity during peak times, and generation plants to experience shortages and rely on more expensive alternatives.
A variety of pipeline proposals have been circulated, but there is contention regarding how large the pipeline(s) needs to be and how costs for these infrastructure projects will be recovered. The New England States Committee on Electricity (NESCOE) proposed one of the earliest solutions to address the issue of pipeline funding. NESCOE is a Regional State Committee recognized by the Federal Energy Regulatory Commission (FERC) that represents the collective perspective of the six New England Governors in regional electricity matters. Their proposed solution, Incremental Gas for Electric Reliability (IGER), involved introducing a tariff collected by the Regional Transmission Organization to recover pipeline costs. This approach faced many roadblocks, including whether it would be able to stand up against the Federal Power Act, which prohibits charging electricity customers for natural gas capacity. While never rejected by FERC, IGER lost momentum amidst growing legal concerns.
More recently, the Massachusetts Department of Public Utilities (DPU) introduced docket 15-37, which, if passed, would allow electric distribution companies to contract for capacity and have costs subsidized by electric customers under the rationale that incremental natural gas capacity is needed to ensure electric reliability and to lower electricity prices. Like IGER, docket 15-37 is facing state and federal legal constraints regarding electric customers covering the costs of natural gas infrastructure.
While the Regulatory discussion continues, other stakeholders are outspoken against the need for new pipeline infrastructure. On November 18th, Attorney General of Massachusetts Maura Healey announced that a study commissioned by her office has concluded that the region is unlikely to face electric reliability challenges through 2030, and that investing in energy efficiency and demand response programs are expected to be more cost effective methods of addressing energy challenges. Several solutions were analyzed as methods to meet demand in “worst case” scenarios, modeled to show stressed conditions on the electric grid. Each was compared to the status quo and evaluated for their expected costs to customers and expected greenhouse gas emissions. In response to the results, Attorney General Healy stated, “As we make long-term decisions about our energy future, it’s imperative we have the facts…. This study demonstrates that we do not need increased gas capacity to meet electric reliability needs, and that electric ratepayers shouldn’t foot the bill for additional pipelines.”
Kinder Morgan, the largest energy infrastructure company, plans to proceed with its proposed Northeast Energy Direct pipeline regardless of the legal or regulatory outcomes of the IGER or docket 15-37. The company has received contracts for 43% of the proposed 1.3 Bcf/d of proposed capacity. Before a pipeline can be constructed FERC must issue a Certificate of Public Convenience and Necessity. It’s still unclear whether FERC will deem a pipeline with less than 50% of capacity committed to be a “public necessity.” Attorney General Healy recently provided a copy of the study conducted under her office to FERC as part of its federal review.
While utilities seek to lower prices for their customers and improve grid reliability, as well as comply with environmental mandates like the Clean Power Plan, natural gas demand across the country is expected to increase. States are left to determine whether it’s prudent to support it with infrastructure upgrades, or seek for alternatives to drive down demand or produce cleaner energy. As this issue comes to a head in New England, utilities and regulators will become center stage in determining appropriate methods for both demand planning and cost recovery.