Gas pipeline ruling increases need for Canadian hydro
On Aug. 17, the Massachusetts Supreme Court vacated a ruling by the Massachusetts Department of Public Utilities that would have permitted electric utilities to charge electric ratepayers for pipeline capacity and then sell the gas to generators. This could be the swan song for the last major natural gas pipeline expansion project on the table for New England.
One of the failures in our electricity markets is that there is currently no mechanism that incentivizes generators to subscribe to firm natural gas capacity. ISO New England will soon commence its “Pay-for-Performance” program, which was designed to penalize generators who cannot operate (usually for lack of fuel supply) during tight supply/demand periods. The program will also reward generators who can operate at critical times. Even with this pending carrot-and-stick program, ZERO natural gas generators signed up for capacity on either of the major proposed pipelines.
While the merits of ratepayer financing of pipeline are debatable, the Massachusetts ruling ostensibly squashed the prospects of any natural gas pipeline expansion that could ease the volatility of natural gas prices and electricity prices in the region. This will be especially true for cold winter months when local distribution companies, which do subscribe to capacity, are using most gas for home heating. Any new natural gas plants will still provide power in the summer, but will do nothing to ease our wholesale electricity price volatility. That is not good for New England’s families and businesses.
As much as high electricity prices are a problem, volatility is just as big a concern. Many businesses, especially seasonal ones, are finding it difficult to contract for reasonable long-term rates and have been forced to buy on the highly volatile spot market. This makes it especially difficult to make capital or hiring plans, and can put entire businesses at risk during an especially cold winter or hot summer.
In addition, when electricity suppliers secure electricity for homeowners, volatility forces them to charge families more to cover the potential price extremes in the real-time market.
The Massachusetts ruling will leave New England with only “one man standing” when it comes to future base load power options that can smooth out winter volatility — imported hydroelectricity from Canada.
We are not going to build new coal, oil or nuclear plants. We have very high market barriers to new entrants (not to mention this new legal decision) that will suppress any expansion of New England’s natural gas pipeline capacity. Fortunately, there are a number of proposed projects that will bring imported hydroelectricity to the New England grid. Ultimately, we will need all of them as the plants that have traditionally supplied us with base load power and stable prices are closing under the strain of distorted markets and public policy initiatives that favor intermittent and unreliable renewables.
Of the proposed hydroelectricity projects in the region, only one, Northern Pass, has a generator agreement to supply power on its transmission line. However, it still needs to get approval from the NH Site Evaluation Committee.
A final SEC decision on Northern Pass should be made by next summer. While there has been opposition to overhead transmission lines, the cost of additional burial, if imposed by the SEC, could make the project financially infeasible and the repercussions will have a serious impact on the future of our grid.
The prohibition of investor-owned utilities from owning generation was supposed to make our markets “competitive” and less costly. Unfortunately, lawmakers and regulators have followed that with policies like Renewable Portfolio Standards that subsidize renewables and the Winter Reliability Program that subsidizes oil and gas generators. This has led us right back to a quasi-regulated marketplace, price volatility and (worst of all) a frighteningly limited base load supply situation.
In a perfect world, truly competitive electricity markets would result in participants competing to provide consumers with the lowest-cost electricity. Unfortunately, we don’t live in a perfect world — and in the world we live in, large-scale hydro and particularly Northern Pass is looking absolutely essential for the survival of New England’s electricity system.
Marc Brown is executive director of the New England Ratepayers Association.