In the latest setback for attempts to bring more natural gas into the region, state regulators have rejected Eversource’s idea to cover the cost of buying gas over 20 years with money paid by electricity users.
Thursday’s decision by the state Public Utilities Commission follows a similar rejection in August from the Supreme Judicial Court in Massachusetts, and may put the kibosh on a $3 billion project known as Access Northeast, which seeks to expand and enlarge pipelines carrying gas through Connecticut into eastern Massachusetts.
The New Hampshire PUC rejection hinged on legal details about the state’s electricity deregulation, but the issue behind it is financing – specifically, a clash between pipeline owners’ wish for contracts lasting 20 years, and electricity producers’ desire to stick with commitments of five years or less.
This mismatch was the major reason Kinder-Morgan killed its plan for a pipeline across southern New Hampshire. The company couldn’t get enough long-term commitments from electricity producers to justify the multi-billion-dollar expense.
The idea rejected Thursday by the PUC attempted to bridge this financing gap.
Basically, it would have allowed Eversource to sign a 20-contract contract to buy gas brought in via Access Northeast and sell the gas to independent power plants. This long-term contract, proponents said, would give Algonquin Gas Transmission, the pipeline owner, incentive to build the huge project, thus increasing gas supply in the region and helping stabilize power costs during winter, when most gas is taken for home heating rather than power production.
The PUC was in the picture because Eversource – actually, the company’s state subsidiary which the PUC still calls “PSNH, doing business as Eversource Energy” – wanted to use an increase in electric rates to cover any costs incurred from the purchase and sale of gas. In technical terms, they wanted a capacity contract added to the firm’s rate base.
The PUC ruled, however, that such a move would violate state laws deregulating the power industry, because Eversource’s sale of gas would legally be the same as owning the resulting power production.
Deregulation of the electricity market separated transmission of power, Eversource’s job, from the generation of power, the job of independent companies. (Ironically, Eversource does own power stations in New Hampshire because the state never quite finished deregulation. But it is in the process of selling them off.)
Eversource spokesman Martin Murray expressed frustration with the ruling Friday.
“The (PUC) staff has previously recognized that the constrained supply of natural gas into the region is contributing to unacceptable electric price volatility. And, the commission directed that we and other utilities propose solutions, to help reduce customer costs. We responded with a proposed solution that we believe will work,” he wrote in an email to the Monitor. “The N.H. PUC order does not move us closer to a solution, and that should concern all of us who depend on a reliable supply of electricity and are seeking stable pricing.”
The Public Utilities Commission in Maine is also a fan of covering long-term gas contracts with electrict rates. In July that body gave conditional approval to the idea for Access Northeast.
Opponents of this plan, however, argue that it would saddle electricity customers with unnecessary costs, protecting Eversource from any poor business decisions, and would help lock the region into long-term dependence on gas when the business and technology of producing and selling electricity is being transformed.
Shale gas is so cheap that it has driven down the price of electricity, leaving other fuels uneconomical. Coal-fired and nuclear power plants are closing around New England, increasing the dependence on gas for creating electricity.
This has lead to the argument that we need more natural gas pipelines here to prevent price spikes or possibly even brownouts.
In general, gas pipeline firms need 20-year commitments from customers to get financing for their billion-dollar projects. Such long commitments, in fact, are often required by utility regulators as a guard against over-building.
Such decades-long contracts are normal in the heating industry where rates are relatively stable, but the electricity market is much more changeable. Power producers loathe to sign contracts for longer than about five years, fearful that rates could fall and stick them with losses.
This wasn’t a problem until recent years, when natural gas the fuel of choice for electricity production. Any new pipelines would have power plants as major customers, bringing this mismatch in contracts to the fore.
(David Brooks can be reached at 369-3313, or email@example.com or on Twitter @GraniteGeek.)