Tariff, Article 97 rulings still in play

From the Greenfield Recorder: If you think NED is dead, you haven’t been reading the fine print.

Recorder Staff

Thursday, April 28, 2016

If you think NED is dead, you haven’t been reading the fine print.

Tennessee Gas Pipeline Co.’s notice of its April 20 decision to indefinitely halt its $5 billion, 416-mile Northeast Energy Direct project clearly said it is suspending further work and expenditures on the pipeline, “as a result of inadequate capacity commitments from prospective customers and a determination that the project is uneconomic.”

Yet the company “is in the process of determining how best to proceed consistent with existing contracts” for capacity on the proposed pipeline, which as now configured would cross eight Franklin County towns on its path from Pennsylvania shale gas fields and Wright, N.Y., to Dracut, north of Lowell.

TGP parent Kinder Morgan in its official statements also said, “The New England states have not yet established regulatory procedures to facilitate binding (electric utilities’) commitments” and that with “the process in each state for establishing such procedures … open-ended … the ultimate success of those processes is not assured.”

What could be more open-ended than a Massachusetts Supreme Judicial Court challenge of a state Department of Public Utilities decision last October allowing electric utilities to sign long-term gas supply contracts with natural gas pipeline developers and provide for tariffs to be paid by their electric customers?

That DPU tariff decision, seen as a way of shoring up support for financing of projects like NED and other planned gas pipelines, has led to applications for those kinds of 20-year agreements by National Grid and Eversource, that are now pending before the DPU.

A Boston court hearing Tuesday on the appeal, filed by the Conservation Law Foundation and GDF Suez, now known as Engie, could resolve whether the DPU’s action to help bring new gas pipeline capacity to the state is legal, or whether the department “is going off the rails on something it had no authority to do,” in the words of CLF staff attorney David Isay.

The state’s attorney general, who normally would defend the DPU as a state entity, had argued in this case against allowing the electric-pipeline arrangements, and has not only refused to defend it against the appeal but has filed a brief in support of the appeal, even requesting time to argue against the DPU decision, Ismay said.

The SJC appeal comes as Berkshire Superior Court is expected to render its decision on another key issue for TGP — whether the state’s constitutional authority under Article 97 to deny use of public conservation land from pipeline development is superceded federal authority under the National Gas Act.

Meanwhile, another effort has been underfoot in the Legislature to add a pipeline tariff provision to a comprehensive energy bill that the House is about to begin drafting, according to Rep. Stephen Kulik, D-Worthington. Kulik co-authored a bipartisan letter this month to House Speaker Robert A. DeLeo, signed by 97 of the 140 House members, urging him to “omit any public support for gas pipeline expansion from any energy legislation package.

“Ordinarily, the natural gas producers would be expected to pay for this infrastructure expansion, if the expected revenue from natural gas sales would justify the cost,” the letter said. “The fact that this is not happening means industry players have determined the risk is not worth the reward. Why should the ratepayer shoulder risk when private industry is unwilling to?”

The letter, calling any such tariff proposal “unprecedented,” says that deepening the state’s already heavy reliance on gas for electricity generation would create liabilities for ratepayers, “particularly since the natural gas market is notoriously volatile.”

Kulik, who said he’s heard the idea of tariff legislation “floated around by colleagues,” also argues that increasing the state’s reliance on fossil fuels “goes against the direction” of the state’s energy and climate change policies, and that if natural gas is seen as a “bridge fuel” until other sources like offshore wind and Canadian hydropower can be put in place, “the utilities should pay for that capacity. That shouldn’t be front-loaded onto ratepayers.”

Massachusetts PipeLine Awareness Network Director Kathryn Eiseman writes in a recent op-ed column, “If the National Grid electric contracts get the “all-clear” by way of new state legislation, Kinder Morgan could decide that NED is economically viable again (even if they have to scale it back ...) Likewise, if the gas markets change, other companies could sign up with Kinder Morgan.

“Back in February of 2014, Kinder Morgan proposed this project as ‘scalable from approximately 600,000 Mcf/d to 2.2 Bcf/day.’ The company cited interest from local gas companies, power generators, industrial end-users, and developers of LNG export projects. When they submitted the NED application to FERC, Kinder Morgan had about 552,000 Mcf/d lined up, primarily with gas utilities, including Berkshire Gas, Columbia Gas, and National Grid’s gas company. The addition of National Grid electric utility contracts put them over 650,000 Mcf/d.

“In other words, the ‘pipeline tax’ alone could be enough to make the NED project instantly financially viable again.”

The attorney general also argues, in a brief supporting the appeal, that the DPU’s ruling would “re-expose ratepayers to the risks inherent in the pre-Restructuring Act regulatory scheme. Neither the Department nor (the Department of Energy Resources has been shy about this intention. ... The order is completely antagonistic to the re-calibrated risk-allocation design embodied in the 1997 Restructuring Act.”

Ismay contends the DPU decision last October is “illegal for a whole host of reasons,” including the fact that the state’s 1997 Electric Utility Restructuring Act doesn’t allow electric distribution companies to be affiliated with an electric generation company, or buy gas and “flip on the open wholesale market to power (generating) companies.”

The 1997 act pulled away from the DPU authority it once had to adjust generation costs, saying in effect “we trust the market,” he said, but instead gave it authority to mitigate high energy prices by implementing energy efficiency plans.

“We see the DPU’s order as an impermissible entry into deregulated energy markets, putting a thumb on the scale of gas suppliers,” said Ismay.