New England’s Controversial Pipeline Proposal Suffers Severe Setbacks

Just a few months ago, New England's biggest and most controversial pipeline proposal, Algonquin Gas Transmission's Access Northeast project (see "Securing Pipeline Infrastructure for Gas-Fired Generation in New England" in the July 2016 issue), was poised for regulatory scrutiny. Access Northeast distinguished itself by its partnership with electric distribution companies (EDCs), namely National Grid and Eversource, which entered into long-term pipeline precedent agreements for capacity to help finance the project. The costs of this capacity would be borne by the customers of electric-only EDCs via retail rates. In other words, retail electric customers in New England would indirectly subsidize a gas pipeline project. The EDCs, of course, had to overcome state regulatory hurdles to make this happen, and that is where the setbacks started.

By way of background, approximately 16,000 MW of gas-fired generation is currently interconnected to the New England market. Yet, only a small subset of generators possess long-term firm pipeline transportation rights that would ensure reliable supplies of gas needed for electric production. Absent these rights, generators may be completely unable to procure gas supplies on constrained (i.e., peak) days (typically, during winter conditions) or would have to pay an exorbitant premium. Thus, the lack of secure transportation rights can directly lead to reduced reliability and electric price volatility that would ultimately impact electric ratepayers in New England.

Testing a New Model

ISO New England, which is the reliability and planning coordinator of its service territory, has sought to ensure the reliability of its capacity resources on peak days by adopting strict capacity performance requirements and penalties for non-performance. This sparked increased dual-fuel capability by new generators, but not procurement of long-term firm pipeline transportation agreements. Without such contracts, pipeline projects cannot be financed and built. That is where the New England EDCs stepped in and teamed up with Algonquin for Access Northeast.

This project would carry up to 900,000 decatherms per day of Marcellus shale gas to approximately 60% of New England's natural gas-fired electric generation. However, the EDCs faced stiff opposition from a number of parties, including the Electric Power Supply Association, the New England Power Generators Association, the Natural Gas Supply Association, the Massachusetts Attorney General, and a number of large electric utilities, generators, gas marketers, and gas producers. (The various objections are summarized in the July 2016 column.)

State and Federal Setbacks

The first major blow to the project came in Massachusetts, where the Supreme Judicial Court ruled that state law prohibits the Department of Public Utilities from authorizing EDCs to enter contracts for gas pipeline capacity. As a result of this ruling, both National Grid and Eversource had to withdraw from their precedent agreements.

The next setback came in late October, when Connecticut's Department of Energy and Environmental Protection (DEEP) issued a notice that it was canceling the Requests for Proposals it had issued and which had ultimately garnered EDC natural gas procurement proposals relying on the Access Northeast project. DEEP had sought to align itself with Massachusetts to procure pipeline capacity for the Northeast region and share the costs accordingly, but once the Massachusetts Supreme Judicial Court deemed the EDC contracts unlawful, Access Northeast ceased being a viable regional option for Connecticut.

Meanwhile, the New Hampshire Public Utility Commission denied Eversource's petition requesting approval of a contract to purchase capacity on the proposed pipeline because it was inconsistent with the state's electric utility restructuring law. Lastly, the Rhode Island Public Utilities Commission unanimously voted to suspend the EDC contract capacity and cost recovery proceedings while other funding options are pursued.

Access Northeast also faced a setback at the Federal Energy Regulatory Commission (FERC). Pursuant to Order No. 809, Algonquin petitioned FERC for a waiver that would permit EDCs who subscribe for pipeline capacity on its system to resell such capacity, on a preferential basis, to electric generators through state-regulated electric reliability programs, without having to comply with FERC's capacity release bidding requirements. FERC rejected the proposed exemption as anti-competitive. FERC stated that under its capacity release regulations, a gas-fired generator could permissibly achieve the state reliability goals, and retain the released capacity, by matching the highest bid submitted by any other bidder, if there are any. FERC did, however, approve part of Algonquin's proposal by granting EDCs a waiver to enable the EDCs to release their capacity to an asset manager pursuant to an asset management agreement.

Dormant but Not Dead?

While the Access Northeast project may not necessarily be dead, the myriad setbacks have certainly made the project dormant. Access Northeast must find new financing partners and/or new regulatory approaches that would permit Algonquin to realize its project's vision. According to Access Northeast's project page, National Grid and Eversource Energy remain co-developers with Algonquin's parent company, Spectra Energy. If Access Northeast stays dormant, reliability and price volatility in the New England region will remain unpredictable for the foreseeable future. The region will likely see a continuation of ISO New England's Winter Reliability Programs and perhaps a strengthening of its capacity performance rules. a-

-Carlos E. Gutierrez(cgutierrez@dwt.com) is counsel in Davis Wright Tremaine's Energy practice group in the firm's New York, N.Y., office.

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