Natural gas pipeline capacity scheduling practices by affiliates of two major utilities cost New England customers an estimated $3.6 billion from 2013 to 2016, according to research by the Environmental Defense Fund (EDF).

The researchers found that utilities owned by Eversource and Avangrid regularly “scheduled far more pipeline capacity” on Algonquin Gas Transmission (AGT) “than they ended up using the next gas day. Repeatedly, these companies down-scheduled their orders at the end of the gas delivery day — too late for that unused capacity to be made available to the secondary market,” the researchers wrote.

The utilities were operating within their contractual rights, but the practices, which led to unused pipeline capacity during cold periods, “show the need to consider improvements to market design and regulation.”

Utilities owned by Eversource made down-scheduling changes on 434 days during the study period that were more than two standard deviations more than the system average and on 351 days there were down-scheduling changes three standard deviations larger. For Avangrid, it occurred on 1,043 days and 1,031 days, respectively.

Unused capacity on AGT exceeded 100,000 MMBtu on 37 days during the three-year period, or roughly 7% of the pipeline’s total daily capacity and 28% of the daily supply to gas-fired generators, the researchers found. This increased average gas prices by an estimated 20% and electricity prices by 38%, according to EDF.

“As a result, we estimate that New England electricity customers paid $3.6 billion more over this period than they would have if the unused pipeline capacity had been available to deliver gas for electricity generation,” the researchers wrote. “…As for the need for a new pipeline, our analysis shows that energy prices over this period were inflated, which means they should not be used to assess how much, if any, additional pipeline capacity is needed. Both conclusions illustrate why it’s so important (and how valuable it could be) to fix the interface between the gas and electric markets.”

With limited pipeline capacity into the region, New England has experienced significant price spikes in recent years when heating and power burn demand compete during the winter. Grid operator ISO-New England has called for expanding the region’s natural gas infrastructure. But newbuild projects like Access Northeast and Northeast Energy Direct — attempts to get more pipeline capacity to New England merchant electric generators reluctant to commit to firm transportation contracts — have had trouble gaining traction.

The EDF research paper, authored by Levi Marks, Charles F. Mason, Kristina Mohlin and Matthew Zaragoza-Watkins, noted that “limited pipeline capacity” into New England “is indeed partly responsible for” the extreme price spikes that occurred during the 2013-14 and 2014-15 winters.

But the “unusual scheduling practices” of the Avangrid and Eversource utilities “tied up capacity that, in a well-functioning market, should have been released, or otherwise made available, to shippers. Instead, significant quantities of pipeline capacity went unutilized on many of the coldest days of the year, pushing up the price of gas,” researchers said.

“While most shippers had little incentive to sacrifice revenue from gas sales by withholding capacity, the two firms observed to withhold capacity also own large portfolios of electric generation units located in the region, giving them an incentive to increase gas prices in order to raise rivals’ costs. That is, by restricting sales of a necessary input to production for their downstream competitors in the wholesale electricity market, the capacity-withholding firms increased the quantity of electricity their largely non-gas units were called upon to generate and the price those units earned.”

Eversource spokeswoman Tricia Modifica slammed the EDF study as “a complete fabrication as evidenced by the lack of credibility it has received in the industry. The underlying concept is not only false and misleading, but concerningly irresponsible as it lacks any understanding of how gas procurement actually works.”

The research appears to come from “anti-pipeline proponents who are trying to make the case that pipeline shortages in New England are due to capacity withholding. To the contrary — it is well documented that New England pipeline demand greatly exceeds the supply on cold days,” she said.

Modifica said Eversource’s gas distribution businesses is closely regulated and “the gas supply we purchase for our customers is a strict pass-through cost, meaning we don’t benefit from higher prices derived from withholding. Again, this is well understood in the industry and is further evidence that the report is not credible.”

On the electric side, “revenue related to the regulated electric generation facilities we own and operate in New Hampshire is the same no matter how often the power plants run. The plants would not produce more revenue for Eversource as a result of gas capacity issues, as the report falsely alleges,” Modifica said. “The pipeline capacity we reserve is done so to meet the needs of our customers, no other purpose.”

Avangrid said it hasn’t been able to fully analyze the EDF research but said its “gas distribution companies are obligated to provide reliable natural gas service to all residential customers and others who have contracted for guaranteed firm service.

“We reserve pipeline capacity to help protect customers from interruptions — including during unpredictable, extreme weather conditions,” an Avangrid spokesperson said. “In Connecticut, we are required to serve as the the ‘supplier of last resort’ for retail, commercial and industrial natural gas customers interconnected to our gas distribution companies. We rigorously follow all applicable laws and regulations in fulfillment of our overriding obligation to provide reliable service to our customers.”

Still, the research is likely to get the Federal Energy Regulatory Commission’s attention, said veteran energy analyst Andy Weissman, an attorney with Pillbury Winthrop Shaw Pittman LLP.

It’s “way too early” to draw any conclusions based on the EDF research, Weissman told NGI, but “at a bare minimum, I assume it’s something that FERC is going to investigate very carefully, very thoroughly. At a bare minimum, it does seem to suggest there’s a need for major changes in the rules to reduce the risk of pipeline capacity not being available to the market in practical terms. I think it cries out for action by FERC to modify the existing scheduling rules or require disclosure of more information or identify some other solution.”

Added Weissman, “It’s clearly intolerable from any point of view to have billions of dollars of cost increases…due to the scheduling practices of two companies.”