POWER January 2017 - 26

New England's Controversial
Pipeline Proposal Suffers
Severe Setbacks
Carlos E. Gutierrez
J
ust 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,
26
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 stateregulated
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. ■
-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.
www.powermag.com
POWER | January 2017
http://www.powermag.com

POWER January 2017

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