State utility regulators will begin public hearings Thursday on a three-year-old plan to expand pipeline capacity and potentially lower energy costs by committing ratepayers to spend up to $75 million annually on natural gas purchases.
But after three years of study, it’s still unclear how much money – if any – utility customers would save by helping to increase the supply of natural gas, which is used to generate half of New England’s electric power.
By law, the overall cost of any investment must be offset by benefits to Maine electric and natural gas customers. If regulators endorse a plan, the governor must approve it.
The law was approved by the Legislature in 2013, when a frigid winter and skyrocketing natural gas prices in New England forced factories to curtail operations on the coldest days. Worried Maine lawmakers passed a bill they hoped would prod energy companies to expand the region’s pipeline capacity. The idea is that adequate gas supply in the winter, when demand is high for both heating and power generation, will keep wholesale energy prices from spiking to levels that are well above the national averages.
The bill directed the Public Utilities Commission to study whether it made sense for ratepayers, through utility contracts, to buy up to 200 million cubic feet of natural gas, at an annual cost of no more than $75 million.
Nearly three years later, the PUC is set to hold public hearings on the plan. Sessions are planned for Thursday and Friday, as well as next Tuesday. The PUC’s staff is scheduled to present its recommendations June 3, and the three-member commission could deliberate the case in late June.
But much has changed since 2013.
Natural gas wholesale prices are lower now than they’ve been in more than a decade. Slack demand during a warmer-than-average winter dropped wholesale electric prices in 2015 to the second-lowest level in 12 years.
Also down are prices for imported liquefied natural gas, which supplements domestic supplies.
A new pipeline expansion called the Algonquin Incremental Market project is set to begin pumping this fall, despite opposition from some residents and politicians in New York.
But at the same time, New England is losing generation from retiring nuclear power and oil units, and several new power plants planned for the future will burn natural gas.
So as the PUC starts to wrap up its protracted process, two questions are in the forefront:
Is Maine still at risk of experiencing another round of shortage-driven price hikes?
Or have market conditions changed in a fundamental way, making ratepayer investment unnecessary?
A MAJOR PLAYER BOWS OUT
Those questions took on new urgency last week after Kinder Morgan, the nation’s largest energy infrastructure company, announced it was giving up on its Northeast Energy Direct pipeline proposal. The $3 billion project would have expanded the company’s Tennessee Gas Pipeline through Massachusetts and southern New Hampshire, bringing up to 1.2 billion cubic feet of shale gas from fields in Pennsylvania. It was one of three projects bidding to supply capacity to Maine, in the case before the PUC.
New England burns roughly 4.5 billion cubic feet of gas a day in the winter. For comparison, that’s equal to about 31 million gallons of heating oil.
Northeast Energy Direct was controversial from the start because it would have run 430 miles and created new pipeline corridors. Business interests and some consumer advocates voiced support for the promise of lower power bills. But environmental groups across New England, landowners along the proposed route and many politicians rallied against it, citing concerns ranging from the impacts of hydraulic fracturing during gas extraction to continued reliance on fossil fuels.
Tony Buxton, a Maine lawyer representing Kinder Morgan at the PUC, said the failure in Maine and the other New England states to make timely commitments influenced the company’s decision to walk away. Noting that five paper mills in Maine have closed during the PUC review process, he cautioned that the state could lose more of its manufacturing base if regulators don’t act soon.
The two remaining supply bidders in Maine are Spectra Energy’s Access Northeast project and the Portland Natural Gas Transmission System’s proposal, called Continent to Coast. Access Northeast would upgrade the existing Algonquin pipeline and add LNG storage to bring more gas to the region’s power plants. Continent to Coast would be able to transport gas into the Maritimes & Northeast Pipeline, at Westbrook.
Tim Schneider, the state’s public advocate, said his office has concluded that Maine ratepayers would be better off overall if the PUC approves a contract for some level of new gas capacity. But what’s still unknown is how much monthly electric bills would fall in order to offset the investment.
“The big question for the PUC is, what are those benefits?” Schneider said.
VOLATILE MARKET, MORE PROPOSALS
Pipeline opponents downplay any benefits, and draw a different conclusion from Kinder Morgan’s departure. They say the company recognized that wholesale gas price trends were down and it wouldn’t be able to sell enough capacity on its system to be profitable.
“The market reaction of Kinder Morgan answers the question,” said Greg Cunningham, a vice president at the Conservation Law Foundation. “If they felt that in the near term they could have made money, they would have stuck with it.”
Cunningham said the past three years have shown just how volatile energy markets are, and why utility customers shouldn’t backstop investments for multibillion-dollar energy companies. His group favors regional proposals currently being considered to meet added power demands through wind, solar and hydro power, as well as stepped-up energy efficiency.
Upgrading the region’s pipeline infrastructure has been a priority for Gov. Paul LePage, who blames high energy prices for contributing to rural Maine’s economic malaise. But Patrick Woodcock, his energy director, said the administration isn’t taking a position at the PUC, and he declined to offer an opinion on ratepayer participation in the shifting energy landscape. Woodcock did say the conditions that kept supply adequate and prices low last winter illustrate how important it is to have enough pipeline capacity.
OTHER STATES STUDYING EXPANSION
As the public hearing stage approaches, Maine’s decision will likely play a small but important role in the future of the two remaining proposals, said Buxton, the attorney for Kinder Morgan. Maine’s share of the anticipated pipeline capacity is only 9 percent, based on the state’s electrical load. New Hampshire and Rhode Island would have the same shares as Maine. By contrast, Massachusetts’ share is 47 percent and Connecticut’s is 22 percent.
Regulatory proceedings are under way or planned in the other states, although decisions are farther off. And now that Kinder Morgan is out of the picture, groups that oppose any natural gas development are shifting their attention to Access Northeast.
In Maine, the PUC review has been exhaustive. It has compiled 417 separate filings and 74 requests for data from parties in the case that include pipeline companies, environmental groups, utilities and government agencies. Much time has been spent dissecting and refuting details of a cost-benefit analysis of the proposals by a consultant for the PUC. The report indicated ratepayer investment wouldn’t be worthwhile.
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