Electric distribution companies (EDC) in Massachusetts may contract for natural gas pipeline capacity to fuel power generation, the Massachusetts Department of Public Utilities (DPU) said late Friday. Costs would be passed on to customers. The order is a win for pipeline projects aiming to serve Northeast power generation and heating demand with Appalachian gas.

The state's largest utilities -- National Grid and Eversource Energy -- provide natural gas and electricity service. Costs of obtaining gas for power generation have not been passed on to consumers since the state's power generation industry was deregulated. However, last week's ruling said passing on such costs is permissible under the deregulation law.

DPU found that an EDC contract for pipeline capacity would be consistent with the state's utility Restructuring Act "...if an EDC is able to demonstrate that entering into a contract would result in cost savings for EDC ratepayers and otherwise satisfies the standard of review for approving EDC gas capacity contracts..." DPU said in its order.

Tennessee Gas Pipeline Co.'s (TGP) proposed Northeast Energy Direct (NED) is one project that stands to benefit from the order (see Daily GPI, Sept. 3). The Kinder Morgan Inc. (KMI) pipeline's project is a competitor to the Access Northeast project of Spectra Energy, Eversource Energy and National Grid (see Daily GPI, Feb. 19). Backers of both projects filed comments in the DPU case in support of EDC pipeline contracts. The pipeline projects need sufficient capacity contracts in order to proceed to construction.

"The Massachusetts Department of Public Utilities order finding that it has the authority to approve contracts entered into by electric distribution companies to secure dedicated natural gas pipeline transportation capacity is an important step in ensuring that electric generators have reliable access to the fuel needed to generate electricity within the ISO-NE [ISO-New England] transmission grid," KMI said.

DPU said in the order that "...increasing regional pipeline capacity will lead to lower gas and electric prices for Massachusetts ratepayers."

Arguing against allowing EDC pipeline capacity contracts were environmentalists opposed to constructing more pipelines in the state, as well as the owner of the Everett LNG terminal in Massachusetts, GDF Suez Energy North America, which argued that gas demand can be met with increased LNG supplies.

The state's Department of Energy Resources (DOER) argued that "...creative solutions are needed to reduce natural gas capacity congestion and to make sufficient pipeline capacity available for electricity generation during peak demand periods...DOER further asserts that gains from additional natural gas capacity can reduce ratepayer costs, diversify the energy mix, and secure electric system reliability," DPU said in its order.

Last month, staff of the New Hampshire Public Utility Commission (PUC) said in a report that the state's EDCs are allowed under existing law to contract for pipeline/liquefied natural gas capacity for the benefit of their customers and may recover associated costs in PUC-approved rates (see Daily GPISept. 18).

Also last month, TGP announced a project called PowerServe, which would utilize NED assets to provide up to 740,000 Dth/d of transportation capacity for eligible power plant operators, electric distribution companies and natural gas marketers or aggregators (see Daily GPISept. 11).