Governors of the six New England states want a new natural gas pipeline into New England, and are willing to put ratepayer dollars on the line to get it done.
In a letter to the operators of the regional power grid sent last week, they called on ISO-NE to help make their proposal a reality by imposing a new tariff on electricity generators and transmission companies, which would be passed along to consumers on electric bills.
The money would be used to finance firm commitments for the purchase of natural gas that would in turn stimulate construction by natural gas pipeline operators. Ratepayers would pay more now to subsidize lower electricity costs for years to come.
“ISO has identified the region’s reliance on natural gas as the most significant risk to continued reliability of the electric power system, so we are pleased to see the states focused so strongly on developing additional energy infrastructure,” said ISO spokeswoman Marcia Bloomberg.
With more than 50 percent of the region’s electricity now generated by natural gas, pipeline constraints are pushing up the price of wholesale power. Consumers have seen the price hikes on their electric bills, and some manufacturers have had to shut down or reduce hours.
While much of the Northeast enjoys the benefits of abundant natural gas from the Marcellus Shale formation that stretches through the region, New England has been left out in the cold, both figuratively and literally.
Low-priced natural gas helps keep wholesale electricity prices down in the summer, but during the winter months the prices soar, as power plants compete with utilities for limited space on the two main pipelines from Marcellus into New England.
Power plant owners and pipeline builders have been at a standoff ever since the need for more pipeline into New England became apparent.
Pipeline builders want 15- to 20-year commitments from power plant owners to purchase gas at a contracted price, while power plant owners prefer to buy mostly on the spot market to benefit from the low prices nine months of the year.
The public option
The price of natural gas was so high at one point last week that it was more economical for the ISO to call on PSNH jet-fueled generators at Merrimack Station in Bow, known in the industry as “peakers.”
“ISO dispatches the least expensive generators first to meet demand, going up the bid stack as demand rises. High-priced jet fuel-fired peakers across New England were dispatched first because they were less expensive, not because they were needed for reliability,” Bloomberg said.
Extremely high winter prices are used to create a 12-month average price, pushing the cost of electricity in the region well above other parts of the country. With New England’s ability to compete for economic development hanging in the balance, the governors in December announced a regional pact to address the issue and created the New England States Committee on Electricity.
That agreement resulted in a Jan. 21 letter from the committee to Gordon van Welie, president and CEO of ISO-NE, proposing what amounts to public financing of a new gas line to go live no later than the winter of 2017-18.
“While this would be a novel approach to spurring investment in natural gas pipeline, it is a mechanism that could break the logjam that has stymied the level of natural gas pipeline expansion needed to meet the region’s needs,” Bloomberg said. “The ISO is pleased to contribute to any efforts that will address the urgent need for new natural gas pipelines into New England.”
The proposed tariff will be put through the ISO committee process and submitted to the Federal Energy Regulatory Commission for approval.
The trade group representing industrial users of natural gas welcomed the initiative, but said it didn’t go far enough.
“New England needs 2 billion feet per day of additional natural gas pipeline capacity to definitively resolve the energy cost crisis,” said Tony Buxton, general counsel for the Industrial Energy Consumers Group, based in Augusta, Maine. “The governors’ agreement would provide only one billion cubic feet, with 40 percent of that already dedicated to heating uses.”
Buxton pointed out that in January, New England prices for natural gas ranged around $50 per MMBtu (million British thermal units), while in other parts of the country prices were as low as $3 to $5 per MMBtu.
Environmentalists think the proposal may go too far toward even greater reliance on natural gas — a cleaner fossil fuel but a fossil fuel nonetheless.
“This agreement raises concerns over whether the proposed upgrades would be consistent with the rapidly changing grid and states’ climate laws and policies,” said N. Jonathan Peress, vice president and director of Clean Energy and Climate Change at the Conservation Law Foundation.
“In particular there is a very real risk that the states will overbuild natural gas infrastructure that would ultimately not comply with these laws, increase our overreliance on natural gas, and potentially leave the public holding the bag for a bad bet,” he said. “Additionally, ISO New England’s legally mandated role does not include funding new gas infrastructure, and the states cannot ask that federally regulated organization to step outside its designated power and role.”
Gus Fromuth, managing partner at Freedom Energy Logistics in Manchester and a longtime member of the New England Power Pool, said the history of energy projects in the region suggests the governors may be tilting at windmills.
“The idea put forward that the public sector can successfully execute a plan to bring more pipeline capacity to New England in the time-frame specified is, in a word, bewildering,” he said. “Since every major energy project proposed in New England in the last 10 years has been met with hurdles too high to get done, I can’t imagine how the authors of this letter realistically expect this project to ever see the light of day.”
Even if the six states can agree on cost-sharing, Fromuth said, the regulatory process is formidable: “Any opposing group — environmental groups, overnight coalitions formed to protest the route, disgruntled competitors selling competing fuels — could tie the plan up in knots for years.”
The governor’s initiative comes as New England is about to lose two of its largest power plants — the coal-fired Brayton Point in Somerset, Mass., and the Vermont Yankee nuclear plant in Vernon, Vt.
“In the letter they speak of 1,200 to 3,600 megawatts of energy needed; yet they are saying goodbye to Brayton Point and Vermont Yankee,” Fromuth said. “These are two plants that together can provide 2,300 megawatts before the region needs to burn natural gas to make electricity. Take them out of the equation, and we have even less cushion before deployment of the gas fleet.”