Should electric ratepayers pay for gas pipelines?

Unprecedented proposal comes with risks

THERE SOON MAY be a new charge on your electric bill for natural gas pipeline construction.

The novel idea first surfaced last summer as the six New England states began exploring ways to bring more natural gas into the region, and now a group of companies pushing a pipeline expansion plan are spelling out in greater detail how it might work.

The plan, called Access Northeast, would upgrade existing pipeline facilities to deliver an additional 1 billion cubic feet a day of gas into the region, which would boost supplies by about 25 percent. The $3 billion pipeline project would be financed by a $400 million-a-year gas-supply contract paid for by electricity ratepayers. Officials said the gas would be resold to gas-fired power generators and the revenue from those sales would be used to offset the ratepayer investment.

Access Northeast is a collaboration between pipeline operator Spectra Energy and the region’s two major utilities, Eversource Energy (the old Northeast Utilities, which had as subsidiaries NStar and Western Massachusetts Electric) and National Grid. Officials from all three companies briefed reporters on their project this week.

Lee Olivier, an executive vice president at Eversource, said an expansion of pipeline capacity should lead to an overall reduction in electric bills by eliminating price spikes caused by gas shortages. Olivier cites a new study paid for by his company that suggests savings region-wide during a normal winter would amount to $1 billion. During unusually cold winters, such as the one that occurred last year, savings could run as high as $2.5 billion, he said.

“The payback on this project is very, very quick,” Olivier said.

Backers say the unorthodox pipeline financing approach is needed because of the region’s heavy reliance on gas and the way gas-fired power plants buy their fuel. New England gets about 50 percent of its electricity from gas-fired power plants, and that percentage is likely to grow as coal-fired plants retire. Gas-fired power plants purchase their fuel on the spot market, in contrast with companies that deliver gas to homeowners, which sign long-term contracts for pipeline capacity. During most of the year, spot-market purchases are no problem. But, as the region discovered last winter, when temperatures fell and demand for gas from homeowners rose, there wasn’t enough pipeline capacity to delivery gas for all of the power plants. Gas prices on wholesale markets soared.

“The need for the project is unequivocal,” Olivier said. “This is something that has to get fixed or there will be dire consequences for the region.”

Gov. Charlie Baker, at a New England Council breakfast on Thursday, said he was encouraged by the Access Northeast project. Maine officials are also exploring having electricity ratepayers buy natural gas to ease shortages in that state.

Christopher Courchesne, a senior attorney with the Conservation Law Foundation in New Hampshire, said he likes the Access Northeast idea of expanding an existing pipeline rather than building a new one. He also says the financing scheme is interesting, but he is concerned that ratepayers could be stuck with the bill if the rosy projections about falling electricity prices don’t materialize.

“The billion-dollar question is whether the generators will buy the services,” he said. “They’re asking ratepayers to make a large bet of $400 million a year. If that bet doesn’t pay off, it’s potentially a real problem.”

Courchesne said gas markets this winter appear to be operating differently than they did last year. He said February has been particularly cold, Pilgrim Power Station has been down for much of the month, and the Vermont Yankee and Salem Harbor plants are no longer producing power. On Feb. 2, the region had record gas demand of 4.2 billion cubic feet. Yet despite these almost perfect-storm conditions, wholesale power prices in the region have not spiked and gas shortages have not materialized.

At this time last year, Courchesne said, there had already been 16 days when average wholesale electricity prices were greater than 20 cents a kilowatt hour. So far this year, he said, prices haven’t reached that level for a single day. (Consumers haven’t benefitted from this winter’s lower prices, however. Most buy electricity through their local utilities, which locked in electricity prices for the entire winter in the fall when prices were at record-high levels.)

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

The Access Northeast financing plan piggybacks on proposals initially developed by governors of the six New England states last summer. Those proposals foundered when Massachusetts dropped out of the coalition. Access Northeast officials say they hope the governors will resume their efforts but, if not, they plan to seek approval for their pipeline financing plan from each state’s public utility commission.

“It’s absolutely not a sure thing, And, yes, it is absolutely unprecedented,” said John Flynn, a senior vice president at National Grid. “This is a problem that is very unique to the region and the solution is equally unique.”