Staff of the New Hampshire Public Utility Commission (PUC) came down on the side of Tennessee Gas Pipeline’s (TGP) Northeast Energy Direct (NED) project, with the competing Access Northeast project of Spectra Energy, Eversource Energy and National Grid coming second in an evaluation of natural gas-related options to lower wholesale power prices.
“…[W]e view Access Northeast [see Daily GPI, Feb. 19] and Northeast Energy Direct [see Daily GPI, Sept. 3] as two very cost-effective projects that will moderate future winter electricity prices, though the numbers clearly indicate that NED will provide the greatest benefits to regional electricity customers,” PUC staff said in its report.
TGP is a Kinder Morgan Inc. pipeline. Besides its NED and the Access Northeast project, PUC staff also weighed a proposal by Portland Natural Gas Transmission System (PNGTS) (see Daily GPI, Jan. 13). It and Access Northeast would be expansions of existing pipeline systems while NED would be greenfield pipeline running through Massachusetts and New Hampshire. “All three pipeline-based solutions propose to deliver significant volumes of incremental natural gas supplies to New England from the Marcellus Shale gas formation in northeastern Pennsylvania,” staff said.
Liquefied natural gas (LNG) also is part of the mix. Staff considered a proposal by the Conservation Law Foundation (CLF) to increase the capacity of existing LNG infrastructure in the region. Such infrastructure is composed of local distribution company LNG storage and vaporization facilities as well as LNG import terminals. There also were suggestions to enable greater energy efficiency, demand response and distributed generation, but staff said the presenters of these ideas did not provide costs/benefit information.
Staff also addressed the question of whether New Hampshire’s electric distribution companies (EDC) are allowed under existing law to contract for pipeline/LNG capacity for the benefit of their customers and whether they are allowed to recover the associated costs from customers in PUC-approved rates. The short answer: Yes, they can.
In evaluating Access Northeast and NED, the staff relied in part upon separate studies conducted by ICF International on behalf of each project sponsor (see Daily GPI, Sept. 9).
In its evaluation of NED, staff found that based upon savings and cost estimates, the benefit-to-cost ratio of the project would be 5.25 to 7.0, including the value of enhanced power grid reliability and the investment cost to provide enhanced transportation services. “Further, in order to allow such a cost-effective project to proceed, we estimate that the commission would have to approve a distribution surcharge on all New Hampshire electricity consumers of about 3.3 mills per kWh,” staff said. “Revenues received from the release of the pipeline capacity to gas generators or to secondary market participants would further lower the distribution surcharge.”
For Access Northeast, staff estimated the benefit-to-cost ratio to be in the range of 1.3 to 2.0. “Further, in order to allow such a cost-effective project to proceed, we estimate that the commission would need to approve a distribution surcharge on all New Hampshire electricity consumers of about 4.8 mills per kWh,” staff said “Revenues received from the release of the pipeline capacity to gas generators or to secondary market participants could result in a lower distribution surcharge.”
While it said the PNGTS proposal also would enhance power grid reliability and mitigate winter power price spikes, staff said the magnitude of benefits was not known “…because PNGTS is in a fairly early stage of its project-development process, and has not been able to convey cost estimates as of this present time.”
In a limited review of the CLF LNG-focused proposal, staff said the gas supply and demand estimates do not pencil out.
The CLF proposal would create “a winter-only LNG ‘pipeline'” for local distribution companies to supply gas customer demands on 50 days each winter when the demand for gas is projected to exceed pipeline capacity. The excess gas supply would be available for release to power generators.
“Though staff does not take a position on CLF’s proposal at this time, we do note that ICF has recently projected that under normal weather conditions daily gas demands in 2020 will exceed daily supply capacity on 63 days and in 2035 by 113 days. Further, under design weather conditions, the duration of capacity deficits is projected to increase from 78 days in 2020 to 122 days in 2035. Assuming ICF’s projections to be accurate, the volume of LNG required to meet the capacity deficits (under both normal and design weather conditions) will be far greater than CLF has estimated…”
The New Hampshire PUC staff also wrote that if the New England states decide to seek pipeline capacity as a group on a regional basis the procurement should “not be based on the results of pipeline open seasons.”
Staff said that “because most of the largest EDCs in New England are affiliated with the sponsors of one of the competing pipeline projects, we believe it will be difficult if not impossible for EDCs to make a convincing case that pipeline open seasons qualify as fair, open and transparent competitive processes. For this reason, staff believes it is imperative that the states develop and post for comment an alternative competitive solicitation process (i.e., a request for proposals).
“Absent a demonstrably competitive solicitation, Staff foresees a significant risk that the negotiations between a project sponsor and potential customers will not be at arms-length and thus will not produce the most advantageous cost and commercial terms for consumers. We also foresee the prospect of lengthy and costly delays due to litigation initiated by aggrieved project sponsors.”
Meanwhile in Massachusetts, National Grid has contracted for power supplies for the upcoming winter. If the deals are approved by the Massachusetts Department of Public Utilities, customers will pay 13.1 cents per kilowatt hour. “…[A] typical residential customer would see an electric bill that is 21% higher than their current bill and 9% lower than last winter’s bill (when accounting for additional bill adjustments made throughout the year),” National Grid said. “The typical residential customer’s monthly bill starting Nov. 1 will be $110.18, compared with a current bill of $90.82 or November 2014 bill of $121.20.”
The company said that “due to continued gas pipeline constraints, the electric supply prices remain volatile and relatively high, though not as high as last winter.”
Perhaps, but it’s still winter in New England, and that means periodic natural gas price spikes at Algonquin Citygates and TGP Zone 6, for instance, Barclays Commodities Research’s Nicholas Potter said in a note published Friday. Still, Potter said this winter’s gas prices in New England will likely be lower than those seen during the last two winters.
“…[A]ssuming a return to more normal weather this winter, we estimate residential/commercial demand will average around 1.82 Bcf/d over the winter period, down around 10% from last winter,” Potter wrote. “Lower residential=commercial demand should lower the likelihood of pipeline constraints being hit this winter.”
Additionally, growing Marcellus Shale production continues to back out New England’s traditional gas supplies from the Gulf Coast, Rocky Mountains and Canada. The relative nearness of the Marcellus has lowered gas prices in New England during non-peak periods. “When winter ends, existing capacity into New England is more than adequate to meet demand,” Potter wrote.
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