Multiple news outlets (including the Boston Globe and PR Newswire) reported on Wednesday that National Grid is joining Eversource Energy (formerly Northeast Utilities) and Spectra Energy Corp. as a co-developer of the Access Northeast pipeline project. The Access Northeast project, which Spectra outlined to the New England States Committee on Electricity (NESCOE) in June, is a compliment to previously announced expansions of Spectra’s regional pipeline infrastructure (specifically the Algonquin Incremental Market or “AIM” project and the Atlantic Bridge project). Proponents say that, at a cost of roughly $3 billion, the project could provide approximately a billion cubic feet of gas delivery capacity per day starting in November of 2018, reducing regional gas prices – particularly during periods of high demand in the winter – and thereby reducing electricity prices. A report prepared for Eversource by ICF International, also released on Wednesday, claims that the project would, on average, lower consumer energy costs by about $1 billion per year for ten years.
The Access Northeast project is one of multiple proposals for addressing the upward pressure on regional energy prices caused by tight markets for natural gas last winter, which led to high gas prices and, ultimately, increased wholesale prices for electricity in the region in late 2014, carrying over to a lesser extent thus far in 2015. (The Synapse report released last month analyzing natural gas demand and capacity in Massachusetts for the Massachusetts Department of Energy Resources provides another perspective on regional natural gas markets and the need for additional pipeline capacity.) Generally speaking, these infrastructure proposals frame themselves as solutions to an asserted market failure that has resulted in under-investment in natural gas pipeline infrastructure: while local gas distribution companies obtain firm gas supplies for their residential and other firm supply customers, and have supported investment in infrastructure to meet those demands, natural gas generators—an increasing percentage of the region’s generation mix—are generally not incented to obtain firm gas supplies that might support investment in new pipeline capacity. So, for those who assume that new pipeline capacity is necessary to support electricity generation needs, the question becomes who will pay for that capacity and how?
The Access Northeast project proposes to recover the cost of the new pipeline through the electric rates of retail customers. This approach was one of two approaches considered by NESCOE last year. It is not without a certain appeal, but the details are unclear and there are potentially problematic elements. There was significant debate in the region last year regarding the alternative NESCOE proposal to fund pipeline investment through an amendment to ISO New England’s tariff. Under that amendment, the cost of new pipeline infrastructure would have been passed through from the wholesale market to retail electric customers in the region. That approach was subject to a rigorous debate, some of which is documented on the NESCOE website, and raised significant questions regarding legal authority and implementation. The details of how the Access Northeast proponents now intend to fund their project are not clear, but it seems to be a rethinking of the NESCOE approach. Project proponents may be looking to regional utilities to effectively purchase pipeline capacity for sale to generators and to pass the costs of that investment on to their electric ratepayers. Such an approach would put state-level authorities, such as state utility commissions, center-stage. While it might remove sticky issues of federal jurisdiction that presented challenges for the original NESCOE approach, it is not clear whether states have the existing authority to approve, or would allow, the pass-through of such investments to electric customers. Recovering costs in this manner would also raise issues of fairness: could the costs be attributed to those who receive the benefits of the investment, or would service territories and state boundaries create a mismatch between those footing the bill and those reaping the benefits? Debate over the funding mechanism for any new infrastructure may turn out to be as interesting as debate over the merits of the various infrastructure proposals.