New England is facing an energy crisis brought on by high natural gas prices, and the call by governors in the six states for a new, publicly funded natural gas pipeline does not go far enough to solve the problem, according to a detailed analysis of the region's energy options.
The 30-page analysis, released on Feb. 11, was conducted by a consulting group, Competitive Energy Services of Portland, Maine, on behalf of the Industrial Energy Consumer Group, which represents large-scale users of electricity in New England.
"The governors' recommended addition of one billion cubic feet of natural gas pipeline capacity will help lower energy prices," according to the analysis, "but will still leave New England paying $600 million more for energy annually than if adequate pipeline capacity existed."
The consultants used 12 months of 2013 data to estimate future trends, and concluded that New England needs two billion cubic feet of new natural gas pipeline capacity — twice what the governors are calling for.
"Since 2012, a fundamental shift toward higher costs due to inadequate gas pipeline capacity has occurred in New England," they wrote.
It was just a year ago that the ratepayers in the region were enjoying lower costs attributed to new sources of natural gas tapped in nearby Pennsylvania and Ohio.
Although some experts predicted that the honeymoon would be short-lived, few if any anticipated the dramatic price swings alluded to in the CES analysis, which stated, "Previous studies did not perceive this fundamental shift because of the unavailability of 2013 data."
According to Maine attorney Anthony Buxton, counsel to the Industrial Energy Consumer Group, "This winter has provided frigid witness to the highest energy prices ever experienced by New England — prices routinely twice as high as those of last winter."
The human and economic costs have been significant, he said: "On just one Friday in January, the total cost of electricity in New England was $100 million more than what it would otherwise have been if New England experienced prices like the rest of the nation. The total above-market energy costs to New England in 2014 will be in the billions of dollars."
Buxton points out that in neighboring New York and Pennsylvania, natural gas is available at prices that often dip below $3 per million BTU, but because New England lacks adequate natural gas pipeline capacity, natural gas prices in cold weather have routinely been above $20 per million BTU.
A unique NE burden
"To make matters worse, these prices drive up the price of electricity astronomically for virtually all New England consumers," Buxton wrote. "Electricity prices have routinely doubled this winter ... These prices have closed New England mills for weeks on end, strained home budgets and burdened New England's economy uniquely among regions in the nation."
The worst is yet to come, he continued, "as customers with fixed-price contracts this year see those contracts expire and must now face the grim reality of much, much higher energy costs next winter."
Unregulated competitive energy suppliers who found it easy to compete with regulated utilities on price in 2012 are now struggling to offer a better buy to consumers, if they can.
Any new hydroelectric lines into the region from Quebec or Eastern Canada will help replace the region's aging coal, oil and nuclear plants, but will do nothing to reduce the need for two billion cubic feet of new natural gas pipeline capacity into the region, according to the analysis.
The consultants warn that failure to create new pipeline capacity will make hydro-electricity from Canada more expensive, even if the Northern Pass is built, as high electricity prices in the region are used as a basis for bids from Hydro-Quebec.
"Additional pipeline capacity into New England serves to discipline Canadian energy suppliers by reducing their pricing power," the report states. "To be assured of obtaining low prices for any imported Canadian electric energy, New England must move forward with developing additional pipeline capacity as soon as possible, and before entering into any electricity purchase agreements with Canadian suppliers."
New England is currently served by five interstate natural gas pipelines, the two largest being Algonquin Gas Transmission, owned by Spectra Energy and the Tennessee Gas Pipeline, owned by Kinder Morgan.
Both Spectra and Kinder Morgan have indicated a willingness to spend millions on gas line expansion into New England if they can get guaranteed 15- to 20-year contracts at fixed prices for the capacity. With New England governors willing to put ratepayer dollars on the line to execute those contracts, some construction now appears likely, although no new capacity is likely to go online before 2018.
A promising initiative
One of the most promising initiatives is the Tennessee Gas Pipeline Northeast Expansion Project, which would result in 250 miles of new pipeline, meter stations and upgrades to existing pipeline in New York, Massachusetts, New Hampshire and Connecticut.
"We are currently assessing market interest," said Richard N. Wheatley, director of corporate communications for Kinder Morgan in Houston. "Customer and shipper commitments are required before a project such as this might move forward."
Even though Kinder Morgan has not formally applied to the Federal Energy Regulatory Commission for approvals, the company has already begun to contact landowners along the proposed route, mostly in northern Massachusetts, according to notices sent to town Planning Departments in early January.
"Tennessee anticipates that it will be able to locate a significant portion of the pipeline adjacent, or generally parallel, to existing pipeline and electric utility corridors," wrote a Kinder Morgan official in a letter to the Planning Department in Dunstable, Mass. "Pending receipt of all necessary regulatory approvals, the proposed project is estimated to be placed in service by November 2018."
The commitments to purchase, promised by the New England governors, could move the Kinder Morgan project forward, but not everyone agrees that "socializing" the cost of a new pipeline is such a good idea.
"Pipeline expansion is a worthy endeavor — one that should be undertaken by the private investment of pipeline companies based on capacity commitments from natural gas generators and local distribution companies," said Marc Brown, executive director of the nonprofit New England Ratepayers Association.
"What happens if we build the pipeline and the price of natural gas climbs to levels we saw as few as 10 years ago? Then ratepayers will get hit twice — once for the pipeline and again for the expensive electricity. If we have learned anything over the past decade, it is that government doesn't make very good decisions when it comes to energy policy."
Brown said a better solution would be for the governors to create an environment that encourages private investment.
Whatever method is chosen, time is of the essence, according to the consultant report: "The additional pipeline capacity is necessary to enable New England electricity consumers to realize the benefits of the natural gas revolution that is benefitting the rest of the country."