NH court OKs novel pipeline financing approach

THE NEW HAMPSHIRE SUPREME COURT took a very different stand than its counterpart in Massachusetts on Tuesday, ruling that electric utilities in the Granite State could tap their ratepayers for the money to finance a new natural gas pipeline into the region.

The ruling could help resuscitate efforts to build natural gas pipeline projects in New England, but the likelihood those efforts will succeed without financial support from Massachusetts ratepayers is unlikely. Massachusetts is the largest consumer of electricity in New England, and other states are unlikely to burden their ratepayers with the total cost of a new pipeline.

The New Hampshire case in many respects was a replay of the case in Massachusetts, just with a different outcome. “We acknowledge that the Massachusetts Supreme Judicial Court has interpreted that state’s restructuring law differently than we do New Hampshire’s statute,” the New Hampshire court said in its opinion. “However, we disagree with the conclusion reached in that case for the reasons stated herein.”

New England as a whole faces natural gas pipeline constraints during the occasional period of intense cold, when demand for gas for heat and power exceeds the supply. At the start of this past winter, for example, temperatures plunged for 15 days, wholesale prices of electricity soared, and generators shifted from natural gas to oil and coal, which emit more greenhouse gases.

Electric utilities say the solution is to build additional natural gas pipeline capacity into the region, but the big questionmark has been how to finance that capacity. Power generators that rely heavily on natural gas have been unwilling to enter into long-term contracts for gas because the competitive marketplace offers them no assurances they will recoup their investment. Natural gas utilities can’t justify buying more gas than they need to service their customers. So electric utilities, including Eversource and National Grid, have sought approval to tap their customers for the money to finance a new pipeline, with the expectation that the cost of the gas will be offset over time by lower electricity prices.

In Massachusetts, the Baker administration greenlighted the novel pipeline financing approach, but the Supreme Judicial Court blocked that effort in August 2016. In a unanimous decision, the court held that the state’s Department of Public Utilities must regulate the gas and electric industries separately and that the purchase of long-term natural gas contracts would effectively push electric utilities into the power generation business, a business they were barred from participating in under the terms of a 1997 law that restructured the utility industry.

The Conservation Law Foundation, one of the plaintiffs in the Massachusetts case, hailed the court’s ruling at the time by saying it “affirmed Massachusetts’ commitment to an open energy future by rejecting the Baker administration’s attempt to subsidize the dying fossil fuel industry.” The foundation, which was also a party in the New Hampshire case, was not immediately available for comment on Tuesday.

The same arguments that played out in Massachusetts also took center stage in New Hampshire, but in reverse. In New Hampshire, the Public Utilities Commission ruled in October 2016 that a petition filed by Eversource Energy to purchase natural gas capacity to help finance new pipeline infrastructure was “inconsistent with the purposes of restructuring.” In short, the commission held that, under the state’s electric restructuring law, an electric utility could not be involved in the power generation business.

In overturning the PUC decision, the New Hampshire Supreme Court carefully parsed the language of the statute and concluded the commission was interpreting it too narrowly. “Pursuant to its plain language, and reading the statute as a whole, we discern that the primary intent of the legislature in enacting [the statute] was to reduce electricity costs to consumers,” the opinion said. “Likewise, we disagree with the PUC’s ruling that [the statute] directs the ‘functional separation’ of generation services from transmission and distribution services and elevates that single policy principle over the others identified in the statute.”

The New Hampshire ruling was approved 3-1, with the lone dissenter filing his own opinion. He cited the decision of the Massachusetts Supreme Judicial Court in his dissent. (Correction: An earlier version of this story incorrectly reported the vote as 2-1.)

Eversource Energy, one of the plaintiffs in the New Hampshire case, issued a statement saying the decision “has broad implications for New Hampshire’s energy future at a time when the region has a critical need for additional sources of reliable and affordable energy….This past winter provided another example of how dependent the region is on natural gas, and how prices and emissions can significantly increase when pipelines are constrained and the region must turn to oil and coal-fired power plants.”

Eversource did not specifically address whether it would pursue development of additional natural gas pipeline capacity, but the company did say it would challenge the denial of a power purchase agreement with Hydro Quebec that would have allowed the importation of hydro-electricity into the region over the proposed Northern Pass transmission line. Eversource said the decision “was based on the same flawed legal analysis that the Supreme Court today overturned.”

Pipeline proponents are likely to use the ruling by the New Hampshire court to ratchet up their lobbying for a change in Massachusetts law to allow electric utilities to tap their ratepayers for the money to purchase long-term natural gas contracts. But opponents currently believe they have the upper hand in the Legislature, particularly in the Senate.