Pipelines and electric bills

The ongoing debate over how New Hampshire can help businesses reduce their energy costs may become more heated as a result of a new study just released by the University of New Hampshire.

The study warns that New Hampshire electric customers could see their bills increase over time if they are asked to pay for interstate pipelines that would bring more natural gas into New England. Alternatives like energy efficiency, renewables and energy market adjustments are shown to provide better returns with less risk to ratepayers. 

“New Hampshire’s Electricity Markets: Natural Gas, Renewable Energy and Energy Efficiency” comes on the heels of a novel and arguably risky proposal that would allow electric distribution companies to purchase natural gas capacity, recover the costs of these purchases from ratepayers, and then release the gas into the market in order to bring electricity prices down and provide price relief to electric customers.

The report notes the problems with developers’ studies showing that electric customers would see lower electricity bills. It also cautions against using ratepayer-funded rather than private funding mechanisms to finance gas pipeline expansion, because this poses a “significant risk” of locking ratepayers into higher electric bills for decades. 

The report should shed some light on whether bringing more energy supplies into the region using ratepayer dollars is the best way to bring down electric bills.

Almost half of the power generated in New England comes from gas-fired power plants and, when cold snaps require most of the gas to be used for heating rather than power, electric ratepayers can see price spikes. The regional grid operator and state officials have called for more gas to be brought into the region, but do not specify how. Interstate pipeline expansion and local delivery of liquefied natural gas are two options being considered, but both present challenges.

Private financing for gas transmission expansion relies on long-term contracts with gas distribution companies that provide heating supplies. The power plants that produce electricity rarely enter long-term contracts for fear that they will not be able to recover their investment. 

One developer, Kinder Morgan, withdrew its proposed pipeline expansion project last year for lack of long term gas purchase commitments. The remaining pipeline expansion proposal, “Access Northeast,” is being promoted by PSNH/Eversource and its development partners.

To get around the private financing challenge, Eversource has asked regulators to consider an approach that would rely on long-term contracts between natural gas pipeline companies and electric distribution companies. The proposal was rejected by Massachusetts courts last year. The NH Public Utilities Commission has also rejected the proposal. In February, Eversource appealed the commission’s decision to the NH Supreme Court, and a decision is pending. The Legislature is also considering an amendment to state law that could open the door to the type of ratepayer financing being proposed for Access Northeast. 

But the UNH report casts doubt on the need for ratepayer-funded solutions or immediate government intervention to address energy demand and cost control. It shows that there is no near-term threat to grid reliability and that current pipeline capacity is adequate as a result of substantial upgrades.

Large investments in New England’s electric transmission infrastructure over the past 15 years have increased reliability but, ironically, have substantially increased electric bills. Even so, the report shows that, although the regional price per kilowatt has been higher than the national average for decades, New Hampshire’s average commercial electricity bill is lower than both the regional and national averages with comparable business activity and GDP. 

For example, the report shows that in 2015, the average monthly commercial electric bill in New Hampshire was $529, compared to the $670 U.S. average and the New England monthly average of $786. At the same time, New England has grown economically by reducing energy usage through energy-efficiency measures and changing to a less energy-intensive economy. Looking forward, the report shows only modest increases in regional demand while, at the same time, New England’s grid operator just announced a drop in 2016 electricity demand. 

After analyzing alternatives, the report and an accompanying policy paper, “New Hampshire’s Electricity Future,” recommend more focus on “soft” infrastructure changes — market adjustments, better contracting practices, combined with measures like short-term arrangements for local delivery of LNG, energy efficiency and local renewable energy. The analysis shows these measures will have at least as large a return on investment without exposing ratepayers to higher electric bills from committing ratepayer dollars to assist in financing costly private energy projects.

Requiring the rigorous analysis needed to show that consumers will reap significant benefits from large projects is also recommended, as economic studies submitted to date simply conclude, without sufficient or transparent analysis, that wholesale electric rates would be reduced by pipeline expansion. A fully competitive process in choosing projects is also recommended.

The report and policy paper are essential reading for policymakers considering fundamental changes to New Hampshire’s statutory scheme, which is geared toward competitive energy markets that are designed to provide the lowest possible cost to electric customers. 

Maureen D. Smith is a director and member of the Energy & Environmental Practice Groups at Orr & Reno. The views expressed in this article are her own.

Categories: Opinion