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Despite 'Unlikely' Benefits, Maine Will Consider Backing Pipeline Expansions

Regulators with the Maine Public Utilities Commission (PUC) said the state's electricity customers were "unlikely" to benefit from a provision to invest $75 million a year on natural gas pipeline expansions, but want to proceed anyway and will consider various expansion proposals on a case-by-case basis.

During its 2013 session, the Maine State Legislature enacted the Energy Cost Reduction Act (ECRA), a provision that authorizes the PUC to execute -- after consultation with the state's public advocate and the governor's energy office -- contracts to acquire up to 200 MMcf/d of natural gas pipeline capacity a year, for an annual cost not to exceed $75 million. But last week, the PUC said that might not translate into a great deal for Maine consumers.

"Based on the evidence in this proceeding, we find that it is unlikely that the benefits to Maine customers will exceed the costs of pipeline capacity if the State of Maine (or designated counterparties) enters into [a contract] pursuant to ECRA, unless the cost of pipeline capacity is very low," the PUC said in a 39-page examiners' report issued Oct. 1 (Docket No. 2014-00071). "Nevertheless, we will proceed to a Phase 2 proceeding where we will invite proposals for our consideration.

"We will perform an independent cost-benefit analysis of each proposal that is submitted to inform our determination as to whether sufficient benefits will result to Maine consumers of natural gas and electricity of entering [a contract]."

The examiners' report did not indicate when the proceedings would take place.

The PUC said the state's Office of the Public Advocate (OPA) backs regulators' plans to seek and review pipeline expansion proposals, on the grounds that there is insufficient pipeline capacity in New England to meet peak demand for natural gas during the winter season. Those constraints "cost Maine electricity customers hundreds of millions of dollars over the last two winters.

"The OPA argues that the basis differential from the Marcellus shale region to New England is artificially high and that the underlying natural gas supply and demand fundamentals indicate that high basis differentials will persist and may increase absent intervention," the PUC said, adding that OPA also "notes that as oil and coal-fired generation retires, it will be replaced by natural gas fired generation, increasing regional demand for natural gas; that production from the offshore resources in the Maritimes will decrease; and, absent long term contracts for delivery, LNG [liquefied natural gas] deliveries to the region are likely to continue to be minimal.

"The OPA concludes that additional pipeline investment in the region will be undertaken to meet gas LDC [local distribution company] load growth, but that there is a market failure that is preventing private entities from addressing pipeline capacity constraints. In the OPA's view, market reforms may improve electric reliability, but will not result in additional pipeline capacity and lower electricity costs."

According to the PUC, two pipeline companies -- Maritimes & Northeast Pipeline and Algonquin Gas Transmission Co. -- urged regulators to "carefully consider the risks and potential costs to ratepayers when reviewing any [contract] proposal...

"If the commission pursues a [contract], it should consider only a modest incremental investment in pipeline capacity and focus on projects that will go in-service quickly. This approach will allow Maine to mitigate the risk of costly long-term commitments and determine whether and to what degree these costs are offset by real benefits for Maine."

Portland Natural Gas Transmission System and Northern Utilities also urged the PUC to exercise caution, with the former stating the commission had "the potential to create great change in Maine's energy landscape, but...a wrong step could result in undesirable consequences."

Maine Natural Gas (MNG) said both the company and its customers should be exempt from any costs associated with a PUC contract, "other than those costs that are associated with obtaining capacity to satisfy [MNG's] requirements not otherwise met by contracting directly with a pipeline for existing pipeline capacity."

But Bangor Gas Co. said such contracts support the public interest and are "reasonably likely" to increase gas pipeline capacity into Maine. And Central Maine Power Co. (CMP) added that it was "extremely unlikely that market or rule changes will, within the same time frame, achieve substantially the same cost reduction as the execution of [a contract]." However, CMP said contracts should be executed by regulated utilities, not the PUC itself, and that the costs be allocated to utilities and their customers in proportion to how their benefits from a contract are realized.

Two environmental groups -- the Conservation Law Foundation and Environment Northeast -- said they are opposed to the PUC making any investment in gas pipeline capacity expansions.

Last month, Tennessee Gas Pipeline LLC (TGP) offered Maine a 20-year capacity deal on its proposed Northeast Energy Direct expansion (see Daily GPISept. 18). In its report last week, the PUC said TGP was urging it to "act with urgency" to execute a contract.

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